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Retirement choice in a frictionless labor market

Author

Listed:
  • Luz A. Flórez

    (Banco de la República de Colombia)

  • Catalina Granda

    (Universidad de Antioquia)

Abstract

This paper investigates optimal consumption and retirement choices in an environment without labor market frictions but in which agents face liquidity constraints. To this end, we characterize the optimal savings strategy and the threshold level of assets associated with the decision to retire or not, which in turn yield the optimal consumption and work choices. In line with the literature, we show that wealth plays a crucial role since it determines whether or not it is optimal to save and then to retire. However, our results differ from the conventional view as we find that, for those workers with low levels of assets, retirement is never optimal regardless of income uncertainty.

Suggested Citation

  • Luz A. Flórez & Catalina Granda, 2019. "Retirement choice in a frictionless labor market," Economics Bulletin, AccessEcon, vol. 39(1), pages 734-740.
    • Handle: RePEc:ebl:ecbull:eb-18-00055
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I1-P73.pdf
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    References listed on IDEAS

    as
    1. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, July.
    2. Byung Hwa Lim & Yong Shin, 2011. "Optimal investment, consumption and retirement decision with disutility and borrowing constraints," Quantitative Finance, Taylor & Francis Journals, vol. 11(10), pages 1581-1592.
    3. Toche, Patrick, 2005. "A tractable model of precautionary saving in continuous time," Economics Letters, Elsevier, vol. 87(2), pages 267-272, May.
    4. Jingjing Chai & Wolfram Horneff & Raimond Maurer & Olivia S. Mitchell, 2011. "Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts," Review of Finance, European Finance Association, vol. 15(4), pages 875-907.
    5. repec:wbk:wbpubs:6730 is not listed on IDEAS
    6. Kyoung Jin Choi & Gyoocheol Shim & Yong Hyun Shin, 2008. "Optimal Portfolio, Consumption‐Leisure And Retirement Choice Problem With Ces Utility," Mathematical Finance, Wiley Blackwell, vol. 18(3), pages 445-472, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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