Job Loss, Retirement and the Mental Health of Older Americans Bidisha Mandal Brian Roe The Ohio State University Outline!! Motivation!! Literature!! Data!! Model!! Results!! Conclusion!! Future Research
Motivation!! Increasing percentage of older individuals in the population.!! General decline in job security in U.S. labor market.!! Physical limitations, cognitive changes, bereavement are commonly associated with aging.!! Does work displacement cause additional distress? Are there any long-term effects? "! Job loss skills may not be transferable, loss of income "! Retirement lifestyle changes.!! Policy implication increased private medical expenditure, increased public spending for government medical programs. Relevance!! Mental health affects social behavior, morale, as well as work productivity.!! Deteriorating mental health can manifest in weakened physical health and increase likelihood of suicide.!! Declines in the mental health may negatively influence the wellbeing of other household members.!! Older Americans may be less inclined to seek help for psychological problems (as compared to physical decrements).!! Job loss affects the quality of life
Literature!! Retirement "! Kim and Moen (2002): 458 New York employees; 1994, 1996, 1998 waves of Cornell Retirement and Well-being study. Results: short-term boost in morale, and long-term increase in distress levels for men. "! Drentea (2002): 2 different cross-sectional national surveys Mixed results: lower sense of control, but lower anxiety levels among retirees. "! Midanik et al. (2005): 595 members of a health maintenance organization; short-term effect. Result: lower stress levels among retirees. "! No clear trend; No long-run national panel have been studied yet.!! Related Literature on Retirement "! Kerkhofs et al. (1999): health and retirement are endogenously related. "! Dwyer and Mitchell (1999), Disney et al. (2006): health problems influence retirement plans more strongly than economic variables.!! Involuntary Job Loss (business shut-down or lay-off) "! Gallo et al. (2000): 1992 and 1994 waves of Health and Retirement Study. "! Different methodology to handle endogeneity "! Reverse causality and unobserved heterogeneity "! OLS vs. HT/IV and 2SLS "! Alternative coding
Framework Work displacement Retirement Involuntary job loss Easily adjusts to new lifestyle Unable to adjust to new lifestyle Retirement plans affected Reentry Reemployment Long spell or forced to retire CESD Score!! Mental health measure "! Developed by Radloff (1977) short, self-reporting scale (20 items) for general population. "! HRS only includes 8 items 6 negative and 2 positive binary indicators!! Negative items felt depressed, everything an effort, sleep was restless, felt lonely, felt sad, could not get going!! Positive items was happy, enjoyed life!! CESD = sum (negative items) sum (positive items) Thus, higher score (0 to 8) means worse mental health.!! Both versions commonly used in other studies to measure distress and psychological well-being.
Summary CESD Score!! Reliability "! Cronbach s alpha coefficient for 20 items = 0.85 "! Cronbach s alpha coefficient for 8 items = 0.71!! Mean change in CESD score among those who suffered involuntary job loss is 0.19!! Mean change in CESD score among retirees is 0.17!! Maximum increase in CESD score is reported between the first two waves (1992 to 1994), when job loss rates were high.!! CESD scores improve during latter waves for all. Coding Involuntary Job Loss and Retirement!! Unbalanced panel data "! 6 waves 1992, 1994, 1996, 1998, 2000 and 2002 "! N=7,780 (all those employed in 1992, 51-61 years old)!! Coding "! Survey does not ask R if suffered involuntary job-loss, but reason for unemployment. "! Involuntary job loss!! If R reports business closure or layoff, and started looking for job immediately. "! Retirement (voluntary)!! If R accepts early retirement incentives, and does not look for job immediately. These individuals also call themselves self-retired.!! Plus, those who report retirement as labor market status.!! Data limitations
Data Mean change in CESD score between 1992 and 1994 Labor market status Employed Invol. exit Vol. exit Self-retired Retired (coded) (survey instrument)!cesd 0.44 0.95 0.61 0.63 0.65 Lost job Collapsed as Retirees Distribution of HRS respondents in different labor market situations Survey year Lost job Retired Employed 1994 97 792 6153 1996 87 1451 5116 1998 67 1907 4373 2000 32 2365 3605 2002 47 2883 2932 Summary Statistics (selected variables) Variables (Change) 1992-1994 1994-1996 1996-1998 1998-2000 2000-2002 Job loss (%) 3.32 6.25 4.54 3.17 4.13 Retirement (%) 11.25 25.23 31.80 43.31 53.75 Separated/divorced (%) 1.65 1.08 0.98 0.68 0.56 Married/re-married (%) 1.07 1.19 0.84 0.91 0.81 Widowed (%) 1.05 1.08 1.31 1.42 1.52 Worse physical health (%) 14.4 15.9 16.9 17.6 20.8! ADLA 0.03 0.07 0.02 0.03 0.02! Wealth ($10,000) 3.31 3.01 5.71 4.66-1.03 Response rate 91.04 86.58 83.06 78.77 76.62
Unobserved Heterogeneity!! Compare fixed effects, random effects and Hausman-Taylor IV random effects model using Hausman specification test FE: where, are time-varying independent variables RE: where, and, are time-invariant independent variables denotes individual-specific effects HT-IV: where, the subscripts distinguish between exogenous and endogenous variables!! First difference model: Comparing Model Properties!! FE "! Subtracts off group means "! Along with time-invariant regressors, latent effects are left out!! FD "! Similar, but subtracts off last period s observations "! Again, gets rid of both time-invariant factors and latent effects!! Unbiased, consistent estimates from both FE and FD!! RE "! Can use time-invariant variables, as long as independent of latent effects "! Efficiency gain!! HT-IV RE "! Allows time-invariant variables under lesser constraints "! Correct specification produces consistent, unbiased and efficient estimates "! Limitation single-equation model; model misspecification
FE, RE and HT-IV RE Models Estimates (SE) from different models for selected variables Dependent variable: CESD score Variables FE RE HT-IV RE Job loss 0.191* (0.042) 0.204* (0.040) 0.189* (0.038) Retired 0.051** (0.023) 0.036 (0.021) 0.051** (0.021) Time 0.424* (0.019) 0.413* (0.019) 0.425 (0.018) Time (squared) - 0.051* (0.003) - 0.052* (0.003) - 0.052* (0.002) Separated 0.037 (0.127) 0.168** (0.069) 0.034 (0.116) Widowed 0.405* (0.133) 0.409* (0.073) 0.402* (0.121) Married - 0.276** (0.128) - 0.210* (0.066) - 0.282** (0.117) Physical health 0.190* (0.016) 0.248* (0.009) 0.199* (0.014) * p < 0.01; ** p < 0.05 Model Choice!! Latent effects motivation, productivity "! Time-varying endogenous variables involuntary and voluntary exits, marriage/remarriage, separation/divorce, ADLA index, physical health condition "! Time-invariant endogenous variables age, education, white/bluecollar job!! Choice of model (FE vs. RE) depends on cost of efficiency gain Specification test RE HT-IV RE " 2 (df) 374.01 (21) 8.14 (7) p-value 0.00 0.32!! Only one time-invariant variable significant - gender!! First difference model is adequate in controlling for latent effects and is able to capture the change in mental health due to a shock
Compare with Previous Study!! Gallo et al. (2000) use data from 1992 and 1994 HRS.!! Sample selection is sufficient to take care of latent effects exclude retirees, self-employed individuals, disabled, and those who left their jobs for reasons other than plant closure and lay-off.!! Involuntary job loss plant closure and lay-off!! Method OLS regression.!! Replicate their coding and methodology, and obtain estimate of involuntary exit similar to theirs.!! Problem unobserved heterogeneity still exists Specification test RE HT-IV RE " 2 (df) 102.32 (18) 16.62 (5) p-value 0.00 0.01 Reverse Causality!! Suspect endogenous variables "! Involuntary exit "! Voluntary exit "! Separation/Divorce "! Marriage/Re-marriage!! Instruments (excluded exogenous variables) "! Unemployment rate "! Age at the beginning of each survey "! Parents level of education "! R s level of education "! If R s parents are/were married to each other or to step-parents "! Number of divorces and widowhoods reported in 1992
Validity!! Three basic tests to "! Check if endogeneity actually exists!! H o : suspect endogenous variables are exogenous Compare 2 regressions one where suspect regressors are treated as endogenous, and the other where they are exogenous. Test statistic is distributed " 2 with df = number of endogenous regressors "! Check for weak instruments!! LR test - H o : equation is underidentified To check if the instruments are poor proxies for the endogenous variables. Test statistic is distributed " 2 with df = total number of exogenous regressors - endogenous regressors + 1 "! Check the validity of the instruments!! J statistic - H o : instruments are uncorrelated with error Test statistic is distributed " 2 with df = number of instruments - 1 Results from Labor Market Exit 2SLS regression: Dependent variable!cesd score Variables (Change) All (N = 7780) Estimate SE Involuntary exit E 0.244* 0.042 Retirement E - 0.261* 0.034 Sep./divorce E - 0.121* 0.038 Married E 0.037 0.035 Widowed 0.897* 0.092 Death of child 0.220* 0.059!ADLA 0.426* 0.027 Worse physical health 0.331* 0.032 Endogeneity " 2 (4) 87.98* LR statistic " 2 (6) 24.79* J statistics " 2 (5) 4.44 E - endogenous * p < 0.01
Results from Re-entry after Job Loss 2SLS regression: Dependent variable!cesd score Variables (Change) Only those who lost job (N = 418) Estimate SE Reemployment E - 0.426* 0.137 Sep./divorce 0.862** 0.440 Married 0.341 0.504 Widowed 1.999* 0.425!ADLA 0.723* 0.133 Worse physical health 0.451* 0.126 Endogeneity " 2 (1) 8.57* LR statistic " 2 (3) 112.42* J statistics " 2 (2) 4.12 E endogenous; * p < 0.01; ** p < 0.05 Results from Re-entry after Retirement 2SLS regression: Dependent variable!cesd score Variables (Change) Only retirees (N = 3578) Estimate SE Reemployment E - 0.216* 0.044 Sep./divorce E 0.170 0.041 Married E - 0.065 0.042 Widowed 0.973* 0.125!ADLA 0.334* 0.037 Worse physical health 0.175* 0.040 Endogeneity " 2 (3) 23.37* LR statistic " 2 (4) 16.67** J statistics " 2 (3) 4.28 E endogenous; * p < 0.01; ** p < 0.05
Involuntary Exit vs. Reemployment 2SLS regression: Dependent variable!cesd score Variables (Change) Only those who lost job (N = 418) Estimate SE Involuntary exit E 0.172** 0.075 Reemployment E - 0.156* 0.050 Sep./divorce 0.579 0.446 Married 0.185 0.545 Widowed 1.073** 0.424!ADLA 0.517* 0.118 Worse physical health 0.208 0.135 H o : Effect of exit = - Effect of re-entry F-value (p-value) 0.36 (0.55) E endogenous; * p < 0.01; ** p < 0.05 Summary of Steps!! First Difference Model "! Accounts for Unobserved Heterogeneity "! To capture the effect of change in labor market status on change in mental health!! Reverse Causality "! Mental health may decide labor market status "! Two Stage Least Squares (2SLS) "! Endogenous Regressors!! Labor market status!! Marital status (except widowhood)!! Effect of Reemployment
Conclusion!! Endogenous regressors are labor market exit and re-entry, separation or divorce, and marriage or remarriage!! Involuntary job loss negatively impacts mental health!! Similar in magnitude and direction to effect of death of child!! Highest negative effect due to death of spouse!! Retirement has a positive effect on mental health (short-term)!! Re-entering labor market has a positive effect on the mental health for all!! Re-entry recaptures the previous mental health status of those who lost job involuntarily