A Multi-State Model for Sick Leave and Its Impact on Partial Early Retirement Incentives: The Case of the Netherlands
By Sophie de Mol van Otterloo & Jennifer Alonso-García
We investigate the effect of part time and full time work on health using a Markov framework and generalized linear models to smooth the resulting crude rates. The Chapman-Kolmogorov equations are used for a general solution. We apply this model to assess a partial early retirement incentive in the Netherlands, known as “the generation pact”. The smoothed rates imply that working part time does not necessarily mean a better health for the elderly. In fact, men are healthier when working full time, while women fall sick more often when working full time, but recover more often as well. However, when comparing the future rates of a person currently aged 50 working full time and using the generation pact, both the recovery and the morbidity rates drop when starting the generation pact. A stylized assessment of the costs associated yields that costs drop by half when using the generation pact.
Source: SSRN
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