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The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement

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  • Coile Courtney C

    ()
    (Wellesley College)

  • Levine Phillip B

    ()
    (Wellesley College)

Abstract

Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement are often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. The net effect of the current economic crisis on retirement is thus far from clear. In this paper, we use 30 years of data from the March Current Population Survey to estimate models relating retirement decisions to fluctuations in equity, housing, and labor markets. We find that workers age 62 to 69 are responsive to the unemployment rate and to long-run fluctuations in stock market returns. Less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. We find no evidence that workers age 55 to 61 respond to these fluctuations or that workers at any age respond to fluctuating housing markets. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (April)
Pages: 1-42

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:22

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Cited by:
  1. Hendrik Dalen & Kène Henkens, 2013. "Dilemmas of Downsizing During the Great Recession: Crisis Strategies of European Employers," De Economist, Springer, vol. 161(3), pages 307-329, September.
  2. Davies, James B. & Yu, Xiaoyu, 2013. "Impacts of Cyclical Downturns on the Third Pillar of the RIS and Policy Responses," CLSSRN working papers clsrn_admin-2013-20, Vancouver School of Economics, revised 29 Apr 2013.
  3. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2010. "What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 161-82, Winter.
  4. García-Pérez, J. Ignacio & Jiménez-Martín, Sergi & Sánchez-Martín, Alfonso R., 2013. "Retirement incentives, individual heterogeneity and labor transitions of employed and unemployed workers," Labour Economics, Elsevier, vol. 20(C), pages 106-120.
  5. Romain Duval & Mehmet Eris & Davide Furceri, 2011. "The Effects of Downturns on Labour Force Participation: Evidence and Causes," OECD Economics Department Working Papers 875, OECD Publishing.
  6. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2011. "How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?," NBER Working Papers 17547, National Bureau of Economic Research, Inc.
  7. Eric Swanson, 2013. "Implications of Labor Market Frictions for Risk Aversion and Risk Premia," 2013 Meeting Papers 1137, Society for Economic Dynamics.
  8. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2012. "Does Stock Market Performance Influence Retirement Intentions?," Journal of Human Resources, University of Wisconsin Press, vol. 47(4), pages 1055-1081.
  9. McInerney, Melissa & Mellor, Jennifer M. & Nicholas, Lauren Hersch, 2013. "Recession depression: Mental health effects of the 2008 stock market crash," Journal of Health Economics, Elsevier, vol. 32(6), pages 1090-1104.
  10. Nicole Maestas & Kathleen Mullen & David Powell, 2013. "The Effect of Local Labor Demand Conditions on the Labor Supply Outcomes of Older Americans," Discussion Papers 13-014, Stanford Institute for Economic Policy Research.
  11. Martin Farnham & Lucie Schmidt & Purvi Sevak, 2011. "House Prices and Marital Stability," American Economic Review, American Economic Association, vol. 101(3), pages 615-19, May.
  12. David Warner & Mark Hayward & Melissa Hardy, 2010. "The Retirement Life Course in America at the Dawn of the Twenty-First Century," Population Research and Policy Review, Springer, vol. 29(6), pages 893-919, December.

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