The retirement effect on mental health in Europe during 2006-2015: Evidence of Ashenfelter’s dip

Abstract

Since ageing raises concerns over the economic efficiency of rising pension age, the impact of retirement on various aspects of life is on the focus of Euro-pean countries’ policies. Using panel data from the Survey of Health, Ageing and Retirement in Europe (SHARE), this study investigates the effect of retirement on mental health measured by the EURO-D scale (12 levels of depression). Age above specific-country eligible pension age is used as an instrumental variable for retirement status in the fixed effect model to remedy the potential endogeneity bias. This study is the first effort to capture the mental health effect in anticipation of retirement, a phenomenon called ‘Ashenfelter’s dip’ or ‘pre-programme dip’. This study also compares short term effects and long term effects of retirement, which is rarely done before. Different impacts of reasons for retirement categorized into three groups are also analyzed in this study. The study indicates that retirees feel less depressed than people who remain in the labor force. When the age above pension age of individuals is included to pre-dict retirement behavior, the results confirm an analogous effect of retirement on mental health. In terms of reasons for retirement, retiring due to positive circum-stances and aspirational motivations reduce depression remarkably, while there is no evidence to confirm that retiring by negative circumstances affect one’s mental health. The study finds a similar effect for people who are expected to retire in the next two years, but this is not the case for people who know they will retire in the next four years. The potential retirees seem to adjust their lifestyles in response to future retirement. Two years after retirement, the effect is reverted, but after four years the results are not conclusive. Retirees may adapt to their new life completely and the effect of retirement is no longer important