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Labor Market Search and Optimal Retirement Policy

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  • Joydeep Bhattacharya
  • Casey B. Mulligan
  • Robert R. Reed III

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8591.

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Date of creation: Nov 2001
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Publication status: published as Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed, 2004. "Labor Market Search and Optimal Retirement Policy," Economic Inquiry, Oxford University Press, vol. 42(4), pages 560-571, October.
Handle: RePEc:nbr:nberwo:8591

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  1. Casey B Mulligan, 2000. "Can Monopoly Unionism Explain Publically Induced Retirement?," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 157, Chicago - Center for Study of Economy and State.
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Cited by:
  1. Bhattacharya, Joydeep & Reed, Robert, 2006. "Social Security and Intergenerational Redistribution," Staff General Research Papers, Iowa State University, Department of Economics 12661, Iowa State University, Department of Economics.
  2. Maes, Marjan, 2008. "Does the dismantlement of early retirement schemes increase unemployment in Belgium?," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2008/57, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  3. J. Ignacio García Pérez & Alfonso R. Sánchez Mártin, 2012. "Fostering job search among older workers: the case for pension reform," Working Papers, Universidad Pablo de Olavide, Department of Economics 12.09, Universidad Pablo de Olavide, Department of Economics.
  4. Bhattacharya, Joydeep & Reed, Robert, 2003. "Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search," Staff General Research Papers, Iowa State University, Department of Economics 10255, Iowa State University, Department of Economics.
  5. Bhattacharya, Joydeep & Reed, Robert, 2003. "Age-Specific Employment Policies," Staff General Research Papers, Iowa State University, Department of Economics 10256, Iowa State University, Department of Economics.
  6. Mário Centeno & Márcio Corrêa, 2006. "Job Matching, Unexpected Obligations And Retirement Decisions," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 159, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Leon J.H. Bettendorf & D. Peter Broer, 2003. "Lifetime Labor Supply in a Search Model of Unemployment," Tinbergen Institute Discussion Papers, Tinbergen Institute 03-032/2, Tinbergen Institute.
  8. Bhattacharya, Joydeep & Reed, Robert, 2003. "A Positive Theory of the Income Redistributive Focus of Social Security," Staff General Research Papers, Iowa State University, Department of Economics 10681, Iowa State University, Department of Economics.

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