The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers

Hugo Benétez-Silva, J. Ignacio García-Pérez and Sergi Jiménez-Martín
Authors registered in the RePEc Author Service: J. Ignacio García Pérez () and Sergi Jimenez-Martin

No 564, Working Papers from Barcelona School of Economics

Abstract: Unemployment rates in developed countries have recently reached levels not seen in a generation, and workers of all ages are facing increasing probabilities of losing their jobs and considerable losses in accumulated assets. These events likely increase the reliance that most older workers will have on public social insurance programs, exactly at a time that public finances are suffering from a large drop in contributions. Our paper explicitly accounts for employment uncertainty and unexpected wealth shocks, something that has been relatively overlooked in the literature, but that has grown in importance in recent years. Using administrative and household level data we empirically characterize a life-cycle model of retirement and claiming decisions in terms of the employment, wage, health, and mortality uncertainty faced by individuals. Our benchmark model explains with great accuracy the strikingly high proportion of individuals who claim benefits exactly at the Early Retirement Age, while still explaining the increased claiming hazard at the Normal Retirement Age. We also discuss some policy experiments and their interplay with employment uncertainty. Additionally, we analyze the effects of negative wealth shocks on the labor supply and claiming decisions of older Americans. Our results can explain why early claiming has remained very high in the last years even as the early retirement penalties have increased substantially compared with previous periods, and why labor force participation has remained quite high for older workers even in the midst of the worse employment crisis in decades.

Keywords: Retirement; labor supply; employment uncertainty; wealth shocks; life-cycle models (search for similar items in EconPapers)
JEL-codes: J14 J26 J65 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-age, nep-dem and nep-lab
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Related works:
Working Paper: The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers (2012)
Working Paper: The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers (2012)
Working Paper: The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers (2011)
Working Paper: The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers (2011)
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