We examine the role of changing mortality in explaining the rise of retirement over the course of the 20th century. We construct a model in which individuals make labor/leisure choices over their lifetimes subject to uncertainty about their date of death. In an environment in which mortality is high, an individual who saved up for retirement would face a high risk of dying before he could enjoy his planned leisure. In this case, the optimal plan is for people to work until they die. As mortality falls, however, it becomes optimal to plan, and save for, retirement. We simulate our model using actual changes in the US life table over the last century, and show that this “uncertainty e ect” of declining mortality would have more than outweighed the “horizon e ect” by which rising life expectancy would have led to later retirement. One of our key results is that continuous changes in mortality can lead to discontinuous changes in retirement behavior.
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Paper provided by EconWPA in its series Macroeconomics with number
0212006.
Length: 31 pages Date of creation: 17 Dec 2002 Date of revision: Handle: RePEc:wpa:wuwpma:0212006
Note: Type of Document - Tex; prepared on PC; to print on HP; pages: 31 ; figures: included. working paper (revise and resubmit) Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth I12 - Health, Education, and Welfare - - Health - - - Health Production J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
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.:
Naohiro Yashiro & Takashi Oshio, 1999.
"Social Security and Retirement in Japan,"
NBER Chapters,
in: Social Security and Retirement around the World, pages 239-267
National Bureau of Economic Research, Inc.
[Downloadable!]
Cited by: (explanations, 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.)
David E. Bloom & David Canning & Michael Moore, 2007.
"A Theory of Retirement,"
NBER Working Papers
13630, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
David E. Bloom & David Canning & Michael Moore, 2007.
"A Theory of Retirement,"
PGDA Working Papers
2607, Program on the Global Demography of Aging.
[Downloadable!]