New Tools in Micromodeling Retirement Decisions: Overview and Applications to the Italian Case

The aging process and the reduction of labor-force participation are matters of much concern in most developed countries, especially for their implication on the sustainability of Social Security systems and for tackling poverty, just to mention few topics. For this reasons the literature on retirement has developed dramatically in the last decades and, thanks to improved computer power and to data availability, the estimation techniques are getting realistic and the fields of application are constantly increasing. In this paper I present an overview of the most recent developments in micromodeling retirement decisions and discuss the main advantages and disadvantages of each approach; in particular, I put an emphasis on the trade-off between the degree of realism of hypotheses,on the one hand, and data tractability and/or estimation performance, on the other hand, affecting the choice of the estimation strategy. I also sketch some of the most relevant topics which deserve more attention in future research. As an example, in the remainder of the article I focus on the Italian case: after presenting some stylized facts and the main results of the applied works assessing the effects of Social Security on agents’ choices, I carry out a comparison between two alternative “dynamic” estimation approaches (Duration model and Option Value model) and discuss their main implications.In particular, as for the Duration model, I propose several new measures of the wealth accumulation opportunities provided by the Social Security system and assess their role played in determining the timing of retirement of Italian older male employees.