Health and Labor Force Status of Elderly Russians: Does Health Limit an Increase in Retirement Age in Russia?

The problem of pension system self-sustainability has become especially pronounced in Russia, which led many experts to suggest raising the retirement age to increase labor force participation. However, such measures may be inefficient or infeasible if poor health of older Russians constrains their retirement decision. It is possible that other factors, such as health, provide a more effective mechanism for this purpose. The goal of this research is to simultaneously model labor force participation and health of elderly Russians. We define retirement decision as a labor force participation choice: a person is either in the labor force or retired. Our objectives include investigating the effect of health on labor force participation and vice versa, and estimating the effect of reaching official retirement age and consequences of its increase. Simultaneous equations approach is chosen to model retirement and health jointly to account for possible endogeneity. The system of equations is estimated with maximum likelihood method, which allows for correlation between errors in the two equations. We use data from World Health Organization Study on Global Ageing and Adult Health, Wave 1. The survey was conducted in Russia in 2007-2010, and it collected unique objective health indicators, which distinguish this dataset from others. A strong and non-linear effect of health on labor force participation is found, while evidence of the reverse effect is mixed. Unlike for a complex health measure, endogeneity, confirmed by correlation of unobserved shocks in the system of equations, is found for single-question health measures. The results show that an increase in the official retirement age will have a moderate positive effect on labor force participation among women affected by the reform and weaker or no effect among men. Health of elderly Russians does not impose strong limitations on this reform but offers an alternative mechanism of increasing labor force participation.