Article2018

LATE CAREER JOB LOSS AND THE DECISION TO RETIRE

17 citations0/0 files storedInternational Economic Review

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Retirement, Disability, and Employment Labor market dynamics and wage inequality Financial Literacy, Pension, Retirement Analysis

Abstract

Abstract This article provides an empirical analysis of the effect of involuntary job loss on the lifetime income and labor supply of older workers. I develop and estimate a dynamic programming model of retirement with savings, costly job search, and exogenous layoffs. The average cost of job loss is equivalent to one year of predisplacement earnings, 70% due to the wage reduction and 30% to the search frictions. Displaced workers on average retire 14 months earlier. Workers who approached retirement during the Great Recession will work approximately five months longer in response to the contemporaneous financial and labor market shocks.

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References

1992Earnings Losses of Displaced Workers 2002Consumption Over the Life Cycle 1989A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration 1989Simulation and the Asymptotics of Optimization Estimators 2007Reassessing the Ins and Outs of Unemployment 1995Precautionary Saving and Social Insurance 1994Precautionary Saving and Social Insurance 2005The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour

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