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Recessions, Wealth Destruction, and the Timing of Retirement

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  • Barry P. Bosworth
  • Gary Burtless

Abstract

Recessions affect the timing of retirement through two channels, a weaker job market and losses in household wealth. The two phenomena have opposite effects. A weaker economy causes employers to increase permanent job separations and reduce new hires, accelerating retirements that would otherwise have occurred later. Falling household wealth reduces the resources available to pay for retirement, discouraging older workers from leaving the workforce. We use aggregate and micro-census data on old-age labor supply as well as time series data on unemployment, stock and bond returns, and house appreciation to estimate business cycle effects on Social Security benefit acceptance and labor force exit. Trailing real stock and bond returns and house price appreciation have statistically significant but very small effects on old-age labor force participation. High prime-age unemployment has only a small impact on benefit acceptance and labor force participation among older women, but the effects on older men are greater. We estimate that the 4.6 percentage-point increase in prime-age unemployment between 2007 and 2009 reduced the participation rate of 60-74 year-old men by between 0.8 and 1.7 percentage points. This effect has offset the impact of declining household wealth on old-age labor force participation.

Suggested Citation

  • Barry P. Bosworth & Gary Burtless, 2010. "Recessions, Wealth Destruction, and the Timing of Retirement," Working Papers, Center for Retirement Research at Boston College wp2010-21, Center for Retirement Research, revised Dec 2010.
  • Handle: RePEc:crr:crrwps:wp2010-21
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    References listed on IDEAS

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    1. B. Douglas Bernheim, 1987. "Social Security Benefits: An Empirical Study of Expectations and Realizations," NBER Working Papers 2257, National Bureau of Economic Research, Inc.
    2. Bound, John & Schoenbaum, Michael & Stinebrickner, Todd R. & Waidmann, Timothy, 1999. "The dynamic effects of health on the labor force transitions of older workers," Labour Economics, Elsevier, vol. 6(2), pages 179-202, June.
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    6. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February.
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    Cited by:

    1. Gorodnichenko, Yuriy & Song, Jae & Stolyarov, Dmitriy, 2013. "Macroeconomic Determinants of Retirement Timing," IZA Discussion Papers 7744, Institute for the Study of Labor (IZA).
    2. William T. Dickens & Robert K. Triest, 2012. "Potential effects of the Great Recession on the U.S. labor market," Working Papers 12-9, Federal Reserve Bank of Boston.
    3. Catalina Amuedo-Dorantes & Susan Pozo, 2015. "The impact of the recession on the wealth of older immigrant and native households in the United States," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-27, December.
    4. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2011. "How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?," NBER Working Papers 17547, National Bureau of Economic Research, Inc.

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