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The effect of social security, health, demography and technology on retirement

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  • Ferreira, Pedro Cavalcanti
  • Santos, Marcelo Rodrigues dos

Abstract

This article studies the determinants of the labor force participation of the elderlyand investigates the factors that may account for the increase in retirement in thesecond half of the last century. We develop a life-cycle general equilibrium modelwith endogenous retirement that embeds Social Security legislation and Medicare. In-dividuals are ex ante heterogeneous with respect to their preferences for leisure andface uncertainty about labor productivity, health status and out-of-pocket medical ex-penses. The model is calibrated to the U.S. economy in 2000 and is able to reproducevery closely the retirement behavior of the American population. It reproduces thepeaks in the distribution of Social Security applications at ages 62 and 65 and the ob-served facts that low earners and unhealthy individuals retire earlier. It also matchesvery closely the increase in retirement from 1950 to 2000. Changes in Social Securitypolicy - which became much more generous - and the introduction of Medicare accountfor most of the expansion of retirement. In contrast, the isolated impact of the increasein longevity was a delaying of retirement.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 727.

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Date of creation: 24 Feb 2012
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Handle: RePEc:fgv:epgewp:727

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Cited by:
  1. Lorenzo Burlon & Montserrat Vilalta-Bufí, 2014. "Technical progress, retraining cost and early retirement," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 963, Bank of Italy, Economic Research and International Relations Area.

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