5.4 Results

5.4.1  Results from a pooled model (SF12 measures)

The initial results from the pooled model employing the SF12 indices as measures of health are summarised in Table 8. The figures presented are average marginal effects on the probability of participation.[7] For example, in the case of net wealth, the initial predicted probability of participation is 72.1%; this corresponds to the lowest net wealth quartile. In moving to quartile two, the predicted probability of participation falls to 71.2%, a decrease of 0.9 percentage points.

It appears that both better physical and mental health are associated with significantly greater probability of remaining in the labour force. A five-unit (clinically significant) increase in the physical health status measure (SF12v2 PCS) yields a 2.6 percentage point increase (or 4% increase) in the average likelihood of being in the labour force.[8]

However, while the effects of improved health are significantly associated with higher labour force participation, the absolute magnitudes of the effect are modest.

To demonstrate this point, we can consider how the predicted participation rate for individuals aged 65 to 74 would change, if they had the average reported health status of the group aged 54 to 64. The predicted participation rate for the 65 to 74 age group at their observed level of health is 38%. This would increase to approximately 41% were they to have the physical health status of the 54 to 64 age group, ie, explaining a small proportion of the drop in participation between these groups. Hence, whilst health status does play a role in participation, it is clearly not a constraint for all. Other factors appear to be of greater importance, in particular, financial incentives.

Becoming eligible for New Zealand Superannuation reduces the likelihood of being in the labour force by 20.5 percentage points. Likewise, receipt of other superannuation income or transfers reduces the likelihood of participation by 12.4 and 8.3 percentage points, respectively.

Other controls include indicators for region (urban or rural), survey year, income of other household members, migrant status, number of financial dependents and attitude toward retirement. An individual's attitude toward retirement is captured in two binary indicators derived from questions relating to perceptions of retirement. One represents a negative perception of retirement (for example, expecting to feel unproductive and bored), and the other indicating a more positive outlook (for example, looking forward to spending more time on hobbies or volunteer work). Full results are presented in Appendix C.

Source: HWR and NZLSA longitudinal sample

Notes:

1. Other controls are for region, survey year, log income of others in household, migrant status, number of financial dependents, attitude toward retirement.
2. Standard errors are adjusted to reflect the fact that multiple observations for each individual are used.
3. Significance levels (***) 0.01 (**) 0.05 (*) 0.10
4. Figures presented are average predicted probabilities, and marginal effects respectively.

Age is significantly associated with participation; individuals are less likely to participate as they grow older. Additionally, individuals tend to experience health declines with increasing age. One concern is that if the effects of age are inadequately captured in the model, the health variable may pick up some of effect of age, resulting in a biased estimate of the effect of health. A range of more flexible age specifications was tested, to allow non-linearities in the effect of age. After controlling for the wide range of other factors employed, the coefficient on health was found to be robust to various different functional forms for age.

This model was also estimated separately for males and females, to allow differing responses by gender. We find mostly similar effects, including the effects of health status. Key exceptions include marital status: for married males, having a working spouse as opposed to a non-working spouse is associated with a higher likelihood of being in work; specifically a 7.5 percentage point (or a 9.9%) increase in the likelihood of participation. For females, the dissolution of marriage has a significant positive association with labour force participation.

Figure 7 shows how the average predicted probability of participation (as opposed to retirement) changes with age and health status. “Ill health” and “good health” here are defined by a one-standard-deviation change in the SF12v2 physical health summary measure around the mean. When age is fixed at 65 and physical health is set at one standard deviation above the sample mean, the average predicted probability of participation for males is 70%. Setting health at one standard deviation below the mean to represent ill health, the average predicted probability of participation falls to 53%. This implies a marginal change in the probability at age 65 of 17 percentage points, ie, on average, males aged 65 in good health are 17 percentage points more likely to be participating than those in ill health. For females, this difference is 15 percentage points. It is apparent that, holding all else constant, lower physical health is associated with a reduced probability of participation.

Figure 7 – Marginal effects of age and health on labour force participation

Source: HWR and NZLSA longitudinal sample