The Effect of Physical and Cognitive Decline at Older Ages on Work and Retirement: Evidence from Occupational Job Demands and Job Mismatch

Abstract

As workers age, their physical and cognitive abilities tend to decline. This could lead to a mismatch between workers’ resources and the demands of their jobs, restricting future work. We use longitudinal data from the Health and Retirement Study (HRS) linked to detailed occupational characteristics from the O*NET project to investigate how mismatches between job demands and workers’ resources in two physical and two cognitive domains affect retirement outcomes. We estimate how changes in physical and cognitive resources as well as their interactions with occupational job-demands affect changes in 1) subjective reports of work-limiting health problems; 2) mental health; and 3) subjective probabilities of working past age 65. We also estimate hazard models for transitions from full-time work to retirement. We found that declines in physical and cognitive resources are strong predictors of all outcomes: Fewer resources lead to greater reporting of work-limiting health problems; decline in mental health; smaller subjective probabilities of working full-time past age 65; and more transitions from work to retirement. The interaction of resources with job demands, however, is only statistically significant for workers with large-muscle limitations who are more likely to report changes in outcomes when they work in occupations that rely heavily on physical strength. In contrast, the effects of declines in fine motor skills and cognition do not show statistically significant differences by occupational job demands. It appears cognitive and fine motor skills, at least as measured in the HRS, are universally important determinants of working, not specific to certain occupations.