The link between unemployment and pension accumulations is conceptually straightforward; periods of unemployment lead to lower pension contributions, and thus to lower accumulations. However, impacts on accumulation may differ as a result of the timing and frequency of unemployment spells. We hypothesize that unemployment is more likely during periods in which the equities market experiences greater than average returns, largely due to a lead/lag structure of the stock and labor markets, respectively. This would imply that workers may systematically miss opportunities to purchase equities through DC plans when prices are relatively low. To test this hypothesis, we match historic stock returns to stochastically generated unemployment spells for men and women across the earnings distribution. We find lower income workers suffer greater percentage losses in retirement savings as a result of more frequent spells of unemployment. Higher income worker losses are more greatly affected by the timing of unemployment relative to the equities market.
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Paper provided by W.E. Upjohn Institute for Employment Research in its series Staff Working Papers with number
05-114.
Length: Date of creation: May 2005 Date of revision: Handle: RePEc:upj:weupjo:05-114
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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.:
John Y. Campbell & João F. Cocco & Francisco J. Gomes & Pascal J. Maenhout, 2001.
"Investing Retirement Wealth: A Life-Cycle Model,"
NBER Chapters,
in: Risk Aspects of Investment-Based Social Security Reform, pages 439-482
National Bureau of Economic Research, Inc.
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