Physiological aging and life-cycle labor supply across countries

Abstract

We construct a cohort-based frailty index for 180 countries over the period 1990-2019. We use this measure of physiological aging to estimate the impact of deteriorating health on labor force participation. Our three-dimensional panel framework, in which the unit of observation is a cohort in a given country at a given age, allows us to control for a range of unobserved factors. Our identification strategy further exploits a compensating law of physiological aging to account for reverse causality. We find a negative effect of physiological aging on labor market participation: an increase of the frailty index by one percent leads to a reduction of labor force participation of about 0.6 (±0.2) percentage points. Since health deficits (in the frailty index) are accumulated at a rate of about 3 percent per year of life, almost all of the age-related decline in labor force participation can be motivated by deteriorating health.