Equilibrium Unemployment and Retirement
AbstractAs a preliminary step, we first provide some new empirical evidence that labor market conditions affect retirement decisions at the individual level: unemployed people are more likely to retire. Our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to unveil the factors which explain why unemployed workers choose to retire earlier and the conditions under which this behavior is optimal. Two main conclusions emerge: the retirement decision of unemployed workers depends on the labor-market frictions whereas that of employed workers does not; the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal. Considering Social Security policy issues, we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare-optimizing in a second best world where the labor market equilibrium suffers from distortions.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6511.
Length: 30 pages
Date of creation: Apr 2012
Date of revision:
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Find related papers by JEL classification:
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-05-08 (Economics of Ageing)
- NEP-ALL-2012-05-08 (All new papers)
- NEP-DGE-2012-05-08 (Dynamic General Equilibrium)
- NEP-LAB-2012-05-08 (Labour Economics)
- NEP-LMA-2012-05-08 (Labor Markets - Supply, Demand, & Wages)
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