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Equilibrium Unemployment and Retirement

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  • Hairault, Jean-Olivier

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    ()
    (University of Le Mans)

  • Zylberberg, Andre

    ()
    (Université Paris 1 Panthéon-Sorbonne)

Abstract

As 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 Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6511.

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Length: 30 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6511

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Related research

Keywords: search; matching; retirement; Social Security;

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References

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  1. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3986, C.E.P.R. Discussion Papers.
  2. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(5), pages 1034-1076, 09.
  3. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers, National Bureau of Economic Research, Inc 9183, National Bureau of Economic Research, Inc.
  4. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2010. "Efficiency in a search and matching model with endogenous participation," Economics Letters, Elsevier, Elsevier, vol. 106(1), pages 48-50, January.
  5. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 72(2), pages 395-427.
  6. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  7. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, Econometric Society, vol. 76(1), pages 1-29, 01.
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