We examine the role of ill-health in retirement decisions in Britain, using the first eight
waves of the British Household Panel Survey (1991-98). As self-reported health status
is likely to be endogenous to the retirement decision, we instrument self-reported health
by a constructed ‘health stock’ measure using a set of health indicator variables and
personal characteristics, as suggested by Bound et al (1999). Using both linear and
non-linear fixed effects estimators, we show that adverse individual health shocks are
an important predictor of individual retirement behaviour. We compare the impact of
our constructed health measure on economic activity with that arising from the use of
other health variables in the data set. We also examine the impact of the 1995 reform of
disability benefits on the retirement decision
