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Joint Labour Supply Dynamics of Older Couples

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  • Michaud, Pierre-Carl

    ()
    (University of Québec at Montréal)

Abstract

This paper studies the labour force participation dynamics of older couples in the United States. Longitudinal data from the five available waves of the Health and Retirement Study (HRS) is used to investigate if the dynamics introduced by considering both spouses’ behavior provide additional information in trying to fit observed participation sequences. The paper uses a bivariate dynamic binary choice model with unobserved heterogeneity and serial correlation to disentangle the many sources of dynamics and correlation in a couple’s decision making. First, strong true state-dependence is found and results in a bunching of participation and non-participation sequences. Cross-spouse state-dependence is also found which points to indirect effects of social security and pension incentives through complementarity in leisure. Second, the Spouse Allowance program is found to have predicted effects on participation of the couple and these effects are statistically significant. A simulation exercise presents evidence that the elimination of the spouse allowance can raise participation of wives at age 62 by more than the decrease in participation of husbands at age 65.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 832.

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Length: 40 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:iza:izadps:dp832

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Keywords: labour supply of couples; retirement; dynamic panel data models;

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  1. Jonathan Gruber, 1998. "Health Insurance and the Labor Market," NBER Working Papers 6762, National Bureau of Economic Research, Inc.
  2. Robin L. Lumsdaine & Olivia S. Mitchell, . "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
  3. Vella, Francis & Verbeek, Marno, 1999. "Two-step estimation of panel data models with censored endogenous variables and selection bias," Journal of Econometrics, Elsevier, vol. 90(2), pages 239-263, June.
  4. Michael D. Hurd, 1990. "The Joint Retirement Decision of Husbands and Wives," NBER Chapters, in: Issues in the Economics of Aging, pages 231-258 National Bureau of Economic Research, Inc.
  5. Michael Baker, 1999. "The Retirement Behavior of Married Couples: Evidence from the Spouse's Allowance," NBER Working Papers 7138, National Bureau of Economic Research, Inc.
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  7. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
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  10. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
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  12. Vistnes, Jessica Primoff, 1994. "An Empirical Analysis of Married Women's Retirement Decisions," National Tax Journal, National Tax Association, vol. 47(1), pages 135-55, March.
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  14. Courtney Coile, 2003. "Retirement Incentives and Couples' Retirement Decisions," NBER Working Papers 9496, National Bureau of Economic Research, Inc.
  15. Blau, David M., 1997. "Social security and the labor supply of older married couples," Labour Economics, Elsevier, vol. 4(4), pages 373-418, December.
  16. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  17. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
  18. Jiménez-Martín, Sergi & Labeaga, José M. & Martínez Granado, Maite, 1999. "Health status and retirement decisions for older European couples," IRISS Working Paper Series 1999-01, IRISS at CEPS/INSTEAD.
  19. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
  20. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
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Citations

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Cited by:
  1. Michaud, P.C. & Vermeulen, F.M.P., 2004. "A Collective Retirement Model: Identification and Estimation in the Presence of Externalities," Discussion Paper 2004-75, Tilburg University, Center for Economic Research.
  2. Nigel Rice & Jennifer Roberts & Andrew M. Jones, 2006. "Sick of work or too sick to work? Evidence on health shocks and early retirement from the BHPS," Health, Econometrics and Data Group (HEDG) Working Papers 06/13, HEDG, c/o Department of Economics, University of York.
  3. Zhiyang Jia, 2005. "Spousal Influence on Early Retirement Behavior," Discussion Papers 406, Research Department of Statistics Norway.
  4. García-Gómez, Pilar & Jones, Andrew M. & Rice, Nigel, 2010. "Health effects on labour market exits and entries," Labour Economics, Elsevier, vol. 17(1), pages 62-76, January.
  5. Alan Gustman & Thomas Steinmeier, 2008. "How Does Modeling of Retirement Decisions at the Family Level Affect Estimates of the Impact of Social Security Policies on Retirement?," Working Papers wp179, University of Michigan, Michigan Retirement Research Center.
  6. Hospido, Laura & Zamarro, Gema, 2014. "Retirement Patterns of Couples in Europe," IZA Discussion Papers 7926, Institute for the Study of Labor (IZA).
  7. Ted Aranki & Corrado Macchiarelli, 2013. "Employment duration and shifts into retirement in the EU," LSE Research Online Documents on Economics 53190, London School of Economics and Political Science, LSE Library.
  8. Anne C. Gielen, 2009. "Working hours flexibility and older workers' labor supply," Oxford Economic Papers, Oxford University Press, vol. 61(2), pages 240-274, April.
  9. Diana Warren, 2013. "Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement," Melbourne Institute Working Paper Series wp2013n41, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  10. Jones, Andrew M. & Rice, Nigel & Roberts, Jennifer, 2010. "Sick of work or too sick to work? Evidence on self-reported health shocks and early retirement from the BHPS," Economic Modelling, Elsevier, vol. 27(4), pages 866-880, July.
  11. Alan L. Gustman & Thomas Steinmeier, 2009. "Integrating Retirement Models," NBER Working Papers 15607, National Bureau of Economic Research, Inc.
  12. Danilo Cavapozzi, 2008. "Health and Labor Supply Dynamics of Older Married Workers," "Marco Fanno" Working Papers 0073, Dipartimento di Scienze Economiche "Marco Fanno".

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