Retirement and Cognitive Functioning
This chapter surveys recent literature on the effects of retirement on cognitive functioning at older ages around the world. Studies using similar data, definitions of cognition, and instruments to capture causal effects find that being retired leads to a decline of cognition, controlling for different specifications of age functions and other covariates. The size and significance of the estimated effects varied depending on specifications used, such as whether or not models included fixed effects, dynamic specifications, or alternative specifications of instrumental variables. The authors replicated several of these results using the same datasets. Factors that are likely causing the differences across specifications include endogeneity of right-hand side variables, and heterogeneity across gender, occupation, or skill levels. Results were especially sensitive to the inclusion of country fixed effects, to control for unobserved country differences, suggesting the key role of unobserved differences across countries, which both affect retirement ages and cognitive decline.