A sequential model of older workers' labor force transitions after a health shock.

In this paper we estimate and validate a three-period sequential model of older workers' labor force transitions following a health/disability shock, using retrospective information from Spanish cross-section data. Central to the analysis are the effects of the various disabilities and their severity. We find that the probability of remaining employed decreases both with age and the severity of the shock. Moreover, we find strong interactions between age and severity for older workers and none for prime-age workers. Suffering any kind of disability reduces the probability of being employed immediately prior to retirement age, and in such cases it is severity which is the strongest indicator. With respect to demographics, we find that female gender, having a retired spouse or being married all reduce the probabilities of both remaining in employment and returning to work following a spell of inactivity; in turn, principal breadwinner status, education and skill levels increase this likelihood. Copyright 2006 John Wiley & Sons, Ltd.