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Retirement decision under uncertainty: the role of irreversibility

  • R. MAHIEU

    (Insee)

  • B. SÉDILLOT

    (Insee)

Registered author(s):

    The purpose of this paper is to analyze the effect of the irreversibility of the retirement decision on labour supply after 60. According to the theory, when the retirement decision is an absorbing state, people tend to remain longer on the labour market to be able to benefit from changes in preferences or economic environment favourable to participation. Simulations performed on a sample of individuals with heterogeneous careers illustrate this result. When pensions schemes are actuarially fair, the irreversibility of the retirement decision leads to higher participation rates in the first years when retirement is allowed. Moreover labour supply around 60 increases with uncertainty. Simulations show that the impact of an increase in uncertainty on participation rates highly depends on the pension schemes. Whereas the effect is sensitive with actuarially fair systems, it is almost insignificant in the French Institutional setting where individual choices are highly constrained by the rules.

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    File URL: http://www.insee.fr/fr/publications-et-services/docs_doc_travail/G2001-06.pdf
    File Function: Document de travail de la DESE numéro G2001-06
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    Paper provided by Institut National de la Statistique et des Etudes Economiques, DESE in its series Documents de Travail de la DESE - Working Papers of the DESE with number g2001-06.

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    Date of creation: 2001
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    Handle: RePEc:crs:wpdeee:g2001-06
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    1. Jérôme Bourdieu & Benoît Coeuré & Béatrice Sédillot, 1997. "Investissement, incertitude et irréversibilité. Quelques développements récents de la théorie de l'investissement," Revue Économique, Programme National Persée, vol. 48(1), pages 23-53.
    2. Thierry Magnac & David Thesmar, 1999. "Identifying Dynamic Discrete Choice Models : An Application to School-Leaving in France," Working Papers 99-16, Centre de Recherche en Economie et Statistique.
    3. repec:att:wimass:9430 is not listed on IDEAS
    4. John Rust, 1987. "A Dynamic Programming Model of Retirement Behavior," NBER Working Papers 2470, National Bureau of Economic Research, Inc.
    5. Lee A. Lillard & Robert J. Willis, 1976. "Dynamic Aspects of Earnings Mobility," NBER Working Papers 0150, National Bureau of Economic Research, Inc.
    6. Didier Blanchet & Louis-Paul Pele, 1999. "Social Security and Retirement in France," NBER Chapters, in: Social Security and Retirement around the World, pages 101-133 National Bureau of Economic Research, Inc.
    7. Arrondel, L. & Masson, A. & Verger, D., 1997. "Comportements face au risque et à l'avenir : une enquête méthodologique," DELTA Working Papers 97-29, DELTA (Ecole normale supérieure).
    8. Marc BAUDRY, 2000. "Le modèle de préservation de l’environnement de ARROW et FISHER : une approche en terme d’options réelles," Annales d'Economie et de Statistique, ENSAE, issue 57, pages 1-24.
    9. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
    10. repec:fth:inseep:9916 is not listed on IDEAS
    11. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    12. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
    13. R. Mahieu & B. Sédillot, 2000. "Microsimulations of the retirement decision: a supply side approach," Documents de Travail de la DESE - Working Papers of the DESE g2000-07, Institut National de la Statistique et des Etudes Economiques, DESE.
    14. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August.
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