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Coordinating the household retirement decision

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Merkurieva_EconDiscPap_1707revised3.pdf (441.3Kb)
Date
08/06/2018
Author
Merkurieva, Irina
Keywords
Retirement
Intertemporal household choice
Leisure complementarity
HB Economic Theory
H Social Sciences
BDC
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Abstract
This paper explores the sources of retirement synchronisation in dual career households. Empirical evidence suggests that majority of the couples exit the labor force within a short period of time, too tight to be explained by the age differences alone. This retirement coordination is frequently attributed to the complementarity of the spouses’ leisure. Contrary to this view, my estimates suggest that in a household with CES preferences the quantities of leisure consumed by husbands and wives are gross substitutes. Looking for alternative explanations, I develop a dynamic programming model of optimal retirement and labor supply decisions with uncertainty about the household structure, survival, future health status and income. Apart from leisure complementarity, four other channels may generate coordinated retirement in the model: correlated shocks to the individual health and wages, joint response to the shocks received by the household, correlated tastes for leisure due to sorting on unobservables captured by the household fixed effects, and spousal benefits provided by the Social Security. The model generates a distribution of optimal retirement timing that closely mimics the outcomes observed in the data. A counterfactual designed to shut down the family based provisions of the Social Security Act shows that most of the observed coordination can be explained by the existing Social Security policy.
Citation
Merkurieva , I 2018 ' Coordinating the household retirement decision ' School of Economics and Finance Discussion Paper , no. 1707 , University of St Andrews , St Andrews .
ISSN
0962-4031
Type
Working or discussion paper
Rights
Copyright (c) 2018, the author
Collections
  • University of St Andrews Research
URL
https://ideas.repec.org/p/san/wpecon/1707.html
URI
http://hdl.handle.net/10023/10801

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