Late career job loss and the decision to retire
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This paper 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 and savings with costly job search and exogenous layoffs. The structural estimates from the Health and Retirement Study data show that older displaced workers lose up to one and a half years of pre-displacement earnings over the remaining lifetime. Most of this loss (80%) is due to the permanent wage penalty following displacement, while the rest is explained by search frictions. Involuntary job loss makes an average worker retire fifteen months earlier. However, workers who were approaching retirement at the onset of the Great Recession will increase their labor supply by approximately five months in response to the joint impact of changes in the value of household assets and the probabilities of losing and finding a job.
Merkurieva , I 2016 ' Late career job loss and the decision to retire ' School of Economics and Finance Discussion Paper , no. 1606 , University of St Andrews , St Andrews , pp. 1-44 .
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Copyright (c) 2016, the author
My work with restricted data was supported by the Social Sciences Research Services at UW-Madison.
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