2015/4/1 ～ 2016/3/31
The Wealth Accumulation of the Healthy and the Unhealthy at Retirement
It is well documented that unhealthy people are much poorer than the healthy. Specifically, the
wealth gap between health status, called wealth-health gradient, is large among retired people. In
the U.S., among just retired people (aged 65-75), people in excellent health have wealth that is 14
times higher than the wealth of people in poor health. In this project, I will examine three
channels through which health interacts with saving behavior.
(1) Poor health reduces individuals’ earnings abilities and increases medical expenses,
consequently eroding their savings. In my earlier work published in Review of Economic
Dynamics, I found that the difference in potential earnings between the healthy and unhealthy
groups can be as high as 40%.
(2) Some institutional features, specifically mean-tested public health insurance and
redistributive social security system, distort the saving decision. In Pashchenko and
Porapakkarm (2013b), I found that the asset testing rule of public health insurance program
(Medicaid) has a non-trivial negative effect on saving among unhealthy, low income people.
(3) Some early life factors affect both health outcome and saving later on in life. This channel
is motivated by recent empirical studies emphasizing that factors shaped during childhood or
pre-labor market can have long-term effects on economic outcomes in late adulthood. Various
empirical studies confirm that education has a positive effect on both incomes and adults’ health
even after retirement. Heckman et al (2014) found that childhood characteristics, such as
conscientiousness, perseverance, social ability, and curiosity, are important in predicting a variety
of life outcomes.
The research will provide a deeper insight in the issue of the inequality at retirement.
Understanding the sources of inequality is necessary for the design of public health insurance for
the elderly and social security programs particularly in an aging economy. For example, if there
is a large heterogeneity among people at 65, a uniform increase in retirement ages may be not an
optimal policy to reduce the government debt.
Heckman, J., Humphries, J. E., Kautz, T., 2014. The Myth of Achievement Test: The GED
and The Role of Character in American Life, University of Chicago Press
Pashchenko, S., Porapakkarm, P., 2013a. Quantitative Analysis of Health Insurance Reform:
Separating Regulation from Redistribution. Review of Economic Dynamics, 16, 383-404.
Pashchenko, S., Porapakkarm, P., 2013b. Work Incentives of Medicaid Beneficiaries and the
Role of Asset Testing, MPRA Paper 49730, University Library of Munich, Germany