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Pension plan heterogeneity and retirement behavior

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  • Bairoliya, Neha

Abstract

This paper examines the role of Social Security policy changes and the shift in pension plans — from annuity based retirement plans like Defined Benefit to account based plans like Defined Contribution — in explaining the recent increase in labor force participation of older workers. A structural retirement model of consumption, savings, Social Security, health insurance and pension plan heterogeneity is estimated using data from the Health and Retirement Study. The model captures key differences in pension wealth evolution across Defined Benefit and Defined Contribution pension plans and accounts for differences in out-of pocket medical spending across different health insurance groups. As a result, it produces variation in labor supply, both across different pension plan groups and health insurance types at older ages, as observed in the data. After controlling for any changes in the population age distribution and health insurance plans over time, model simulations indicate that changes in pension plan composition can explain 30.5 percent of the increase in labor force participation of the age group 65 to 69. Changes in Social Security normal retirement age and earnings test can each explain 19 and 45% of the increase in labor supply respectively for this age group.

Suggested Citation

  • Bairoliya, Neha, 2019. "Pension plan heterogeneity and retirement behavior," European Economic Review, Elsevier, vol. 116(C), pages 28-59.
    • Handle: RePEc:eee:eecrev:v:116:y:2019:i:c:p:28-59
    DOI: 10.1016/j.euroecorev.2019.03.005
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    Cited by:

    1. Wallenius, Johanna, 2022. "R(a)ising employment of older individuals," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    2. Bairoliya, Neha & Miller, Ray, 2021. "Social insurance, demographics, and rural-urban migration in China," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    3. Francisco Perez‐Arce & María J. Prados, 2021. "The Decline In The U.S. Labor Force Participation Rate: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 615-652, April.
    4. Cipriani, Giam Pietro & Fioroni, Tamara, 2022. "Social security and endogenous demographic change: child support and retirement policies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 21(3), pages 307-325, July.
    5. Zhixiu Yu, 2021. "Why Are Older Men Working More? The Role of Social Security," Working Papers 2021-041, Human Capital and Economic Opportunity Working Group.
    6. Makarski, Krzysztof & Tyrowicz, Joanna & Komada, Oliwia, 2021. "Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security," IZA Discussion Papers 14805, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Defined Benefit; Defined Contribution; Social Security; Retirement behavior; Savings; Health insurance;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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