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Labor Market Search and Optimal Retirement Policy

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Author Info
Bhattacharya, Joydeep
Mulligan, Casey
Reed, Rob

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Abstract

A popular view about social security, dating back to its early days of inception, is that it is a means for young, unemployed workers to "purchase" jobs from older, employed workers. The question we ask is: Can social security, by encouraging retirement and hence creating job vacancies for the young, improve the allocation of workers to jobs in the labor market? Using a standard model of labor market search, we establish that the equilibrium with no policy-induced retirement can be efficient. Even under worst-case parameterizations of our model, we find that public retirement programs pay the elderly substantially more than labor market search theory implies that their jobs are worth. An important effect, ignored by the popular view, is that the creation of a vacant job by a retirement reduces the value of other vacant jobs.

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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10251.

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Date of creation: 27 Mar 2003
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Publication status: Published in Economic Inquiry, 2004, Vol. 42, pp. 560-571.
Handle: RePEc:isu:genres:10251

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Find related papers by JEL classification:
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Casey B. Mulligan, 2000. "Can Monopoly Unionism Explain Publicly Induced Retirement?," NBER Working Papers 7680, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. repec:bep:eapadv:v:4:y:2004:i:1:p:1289-1289 is not listed on IDEAS
  2. Hugo Benitez-Silva, 2002. "Job Search Behavior At The End Of The Life Cycle," Working Papers, Center for Retirement Research at Boston College 2002-10, Center for Retirement Research. [Downloadable!]
  3. Bhattacharya, Joydeep & Reed, Robert, 2003. "A Positive Theory of the Income Redistributive Focus of Social Security," Staff General Research Papers 10681, Iowa State University, Department of Economics. [Downloadable!]
  4. Bhattacharya, Joydeep & Reed, Robert, 2003. "Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search," Staff General Research Papers 10255, Iowa State University, Department of Economics. [Downloadable!]
  5. Bhattacharya, Joydeep & Reed, Rob, 2003. "Age-Specific Employment Policies," Staff General Research Papers 10256, Iowa State University, Department of Economics. [Downloadable!]
  6. Marjan, MAES, 2008. "Does the dismentlement of early retirement schemes increase unemployment in Belgium ?," Discussion Papers (ECON - Département des Sciences Economiques) 2008041, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  7. Leon J.H. Bettendorf & D. Peter Broer, 2003. "Lifetime Labor Supply in a Search Model of Unemployment," Tinbergen Institute Discussion Papers 03-032/2, Tinbergen Institute. [Downloadable!]
  8. Casey B. Mulligan & Xavier Sala-i-Martin, 2002. "Social Security in theory and practice wth implications for reform," Discussion Papers 0203-01, Columbia University, Department of Economics. [Downloadable!]
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This page was last updated on 2009-11-14.

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