6 Discussion and conclusions
This study has examined the factors associated with labour force participation among older New Zealanders. Increased labour force participation is one potentially important source of adjustment in the face of an ageing population, particularly given continued increases in life expectancy.
We used a rich data set based on a longitudinal survey of older New Zealanders, first surveyed in 2006. Follow-up waves of data collection took place in 2008 and 2010. Earlier work by Enright and Scobie (2010), using cross-sectional data from the first wave, established a significant association between health status, marital status, spousal work status and labour force participation. However, analyses based on observations at a single point in time may lead to biased estimates.
Indeed, it is quite possible that a cross-sectional survey could reveal that while those in better health on average are more likely to be in the workforce, changes in the health status of an individual may or may not alter that individual's probability of participating in the labour force. The real value of longitudinal data is that these latter changes over time can be used to analyse the underlying relation between health status and labour force participation.
Our results highlight that changes in health status are not always to a lower status. Of those reporting their health status was good, 27% report an improvement to very good in the following wave of the survey. Additionally, only 54% of those reporting excellent self-rated health remained in excellent health in the subsequent wave.
We find an association between both mental and physical health, and labour force participation. At age 65, the predicted probability that males in good health are in the labour force is 70% (using a relatively objective measure of health). This falls to 53% for those in ill health, a decline of 17 percentage points. For females, the corresponding drop is 15 percentage points.
Similar results were obtained using a self-rated health measure. The predicted probability of participating in the labour force is 28 percentage points lower for those males in fair or poor health, relative to those reporting excellent health. For females, the corresponding decline is 19 percentage points.
Based on the longitudinal aspect of the data, we findthatchanges in physical health as measured by the SF12 index are significant in explaining the labour force status of males; this suggests there may be a direct effect of health on retirement for males. However, this was not the case for females. The relationship between physical health and participation for females disappears after accounting for unobserved influences.
The presence of some chronic conditions is significantly associated with a lower likelihood of participation (although, again, not necessarily implying causal effects). For both males and females, high blood pressure, kidney and heart problems are significantly associated with lower probabilities of remaining in the workforce. After the prevalence of each of the chronic conditions is taken into account, high blood pressure and arthritis are the two most critical chronic conditions associated with lower labour force participation.
The measures we have for health status at best are a proxy for the true underlying health status of an individual, and in addition, observed health status is a reflection of many unobservable influences (such as genetic endowments). While this study has had access to longitudinal data which in principle helps to isolate changes over time, the period covered by the survey (2006 to 2010) is relatively short, and encompasses just three observations. Ideally one would want a longitudinal dataset covering many more years to begin to isolate the dynamic interrelationships between health and retirement.
Nonetheless, it is clear that health has an effect on labour force participation, particularly for unusually large health shocks. However, the observed decline in health status as individuals age explains a relatively small proportion of the aggregate decline in participation of older individuals. Ill health appears to be a constraint for some proportion older individuals, but not all. Of far greater importance universally are other factors, such as financial incentives. For instance, we found New Zealand Superannuation substantially reduces the likelihood of remaining in the labour force. This was true also for those individuals in receipt of other superannuation income or government transfers.
Other factors, such as changing social norms and expectations of older individuals, phased retirement, and flexible work arrangements are likely to be important in encouraging increased participation. This, coupled with the increasing investment in human capital by successive cohorts, suggests an optimistic outlook for the labour market contribution of older New Zealanders.
In addition to the issue of higher rates of labour force exit of older workers, the rate of return to the labour force after a shock is of importance for increasing aggregate participation. Removing barriers to participation - age-based discrimination, limited opportunities for retraining and up-skilling, for example - may also aid in encouraging this inflow, mitigating the likelihood of a temporary withdrawal from employment becoming permanent.
In summary, we find poor health and eligibility for benefits or pensions to encourage exit from the labour force for both males and females; whilst continued employment of a spouse is associated with further participation for males. For females, financial security appears to be a relatively important factor: higher household net wealth is associated with earlier retirement, and the dissolution of marriage with a higher likelihood of participation. Additionally, we find that unobservable effects, specific to the individual, explain a substantial proportion of the retirement decision.
The fact that unobservable differences between individuals play an important role in the retirement decision merely highlights the fact that human behaviour is complex, and the decisions individuals and households make at any time are based on many more factors than what can be captured in a survey. Those decisions are framed by a lifetime's experience and accumulated behaviours. Contemporaneous factors are important in explaining differences in outcomes, but policy interventions to encourage successful ageing should be enacted throughout the life course.
