Wage and Earnings Profiles at Older Ages
The inverted U shape of the lifetime wage profile is frequently taken to be a stylized fact. This implies a smooth decline in wages as workers approach retirement. Instead, this paper shows that the hourly wage of the typical older worker increases slightly with age for as long as he is employed full time. It declines discretely only when he enters partial retirement, a transitional period characterized by the prevalence of part-time work, and remains mostly at thereafter. That is, the wage path at older ages is best represented by a step function. The smoothly- declining profile often found in the literature is the result of aggregation over individuals who enter partial retirement at di_erent ages. This conclusion is robust to controlling for self-selection into partial and full retirement. More importantly, the transition out of full time work is a choice for most workers, and the subsequent wage change is endogenously determined. While standard labor supply models would rationalize the reduction in hours worked upon partial retirement as a response to an exogenously declining wage trajectory, the evidence presented in the paper indicates instead that workers choose to trade more leisure for a lower hourly wage in a context in which a better paid, full-time job is available. In other words, wages and hours are jointly determined at older ages. These findings have important implications for the analysis of saving and labor supply decisions over the life cycle.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.hceconomics.org/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yongsung Chang & Sun-Bin Kim & Kyooho Kwon & Richard Rogerson, 2011.
"Interpreting Labor Supply Regressions in a Model of Full and Part-Time Work,"
RCER Working Papers
560, University of Rochester - Center for Economic Research (RCER).
- Yongsung Chang & Sun-Bin Kim & Kyooho Kwon & Richard Rogerson, 2011. "Interpreting Labor Supply Regressions in a Model of Full- and Part-Time Work," American Economic Review, American Economic Association, vol. 101(3), pages 476-81, May.
- Richard Rogerson & Johanna Wallenius, 2007.
"Micro and Macro Elasticities in a Life Cycle Model With Taxes,"
NBER Working Papers
13017, National Bureau of Economic Research, Inc.
- Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
- Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
- Cunha, Flavio & Heckman, James & Navarro, Salvador, 2004.
"Separating uncertainty from heterogeneity in life cycle earnings,"
Working Paper Series
2005:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
- Flavio Cunha & James J. Heckman & Salvador Navarro, 2005. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," NBER Working Papers 11024, National Bureau of Economic Research, Inc.
- Cunha, Flavio & Heckman, James J. & Navarro, Salvador, 2004. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," IZA Discussion Papers 1437, Institute for the Study of Labor (IZA).
- Nicole Maestas & Julie Zissimopoulos, 2009.
"How Longer Work Lives Ease the Crunch of Population Aging,"
728, RAND Corporation.
- Nicole Maestas & Julie Zissimopoulos, 2010. "How Longer Work Lives Ease the Crunch of Population Aging," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 139-60, Winter.
- Eric French, 2004.
"The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior,"
2004 Meeting Papers
96, Society for Economic Dynamics.
- Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
- Eric French, 2000. "The effects of health, wealth, and wages on labor supply and retirement behavior," Working Paper Series WP-00-2, Federal Reserve Bank of Chicago.
- Kevin E. Cahill & Michael D. Giandrea & Joseph F. Quinn, 2005.
"Are Traditional Retirements a Thing of the Past? New Evidence on Retirement Patterns and Bridge Jobs,"
Boston College Working Papers in Economics
626, Boston College Department of Economics.
- Kevin E. Cahill & Michael D. Giandrea & Joseph F. Quinn, 2005. "Are Traditional Retirements a Thing of the Past? New Evidence on Retirement Patterns and Bridge Jobs," Working Papers 384, U.S. Bureau of Labor Statistics.
- Johnson, Richard W & Neumark, David, 1996. "Wage Declines among Older Men," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 740-48, November.
- Richard Blundell & Mike Brewer & Marco Francesconi, 2008.
"Job Changes and Hours Changes: Understanding the Path of Labor Supply Adjustment,"
Journal of Labor Economics,
University of Chicago Press, vol. 26(3), pages 421-453, 07.
- Blundell, Richard & Brewer, Mike & Francesconi, Marco, 2007. "Job Changes and Hours Changes: Understanding the Path of Labour Supply Adjustment," IZA Discussion Papers 3044, Institute for the Study of Labor (IZA).
- Marjorie Honig & Giora Hanoch, 1985. "Partial Retirement as a Separate Mode of Retirement Behavior," Journal of Human Resources, University of Wisconsin Press, vol. 20(1), pages 21-46.
- Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, September.
- Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:hka:wpaper:2012-001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Pachon)
If references are entirely missing, you can add them using this form.