Recessions, Wealth Destruction, and the Timing of Retirement

Barry Bosworth and Gary Burtless

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: Recessions affect the timing of retirement through two channels, a weaker job market and losses in household wealth. The two phenomena have opposite effects. A weaker economy causes employers to increase permanent job separations and reduce new hires, accelerating retirements that would otherwise have occurred later. Falling household wealth reduces the resources available to pay for retirement, discouraging older workers from leaving the workforce. We use aggregate and micro-census data on old-age labor supply as well as time series data on unemployment, stock and bond returns, and house appreciation to estimate business cycle effects on Social Security benefit acceptance and labor force exit. Trailing real stock and bond returns and house price appreciation have statistically significant but very small effects on old-age labor force participation. High prime-age unemployment has only a small impact on benefit acceptance and labor force participation among older women, but the effects on older men are greater. We estimate that the 4.6 percentage-point increase in prime-age unemployment between 2007 and 2009 reduced the participation rate of 60-74 year-old men by between 0.8 and 1.7 percentage points. This effect has offset the impact of declining household wealth on old-age labor force participation.

Pages: 39 pages
Date: 2010-12, Revised 2010-12
New Economics Papers: this item is included in nep-age and nep-lab
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