IDEAS home Printed from https://ideas.repec.org/p/hou/wpaper/2004-04.html
   My bibliography  Save this paper

Mortality Change, the Uncertainty Effect, and Retirement

Author

Listed:
  • Sebnem Kalemli-Ozcan

    () (Department of Economics, University of Houston)

  • David N. Weil

Abstract

We examine the role of declining mortality in explaining the rise of retirement over the course of the 20th century. We construct a model in which individuals make labor/leisure choices over their lifetimes subject to uncertainty about their date of death. In an environment in which mortality is high, an individual who saved up for retirement would face a high risk of dying before he could enjoy his planned leisure. In this case, the optimal plan is for people to work until they die. As mortality falls, however, it becomes optimal to plan, and save for, retirement. We simulate our model using actual changes in the US life table over the last century, and show that this “uncertainty effect” of declining mortality would have more than outweighed the “horizon effect” by which rising life expectancy would have led to later retirement. A calibration exercise, allowing for heterogeneity in tastes and other non-mortality factors influencing retirement, shows that falling mortality plausibly had a quantitatively significant effect on retirement.

Suggested Citation

  • Sebnem Kalemli-Ozcan & David N. Weil, 2004. "Mortality Change, the Uncertainty Effect, and Retirement," Working Papers 2004-04, Department of Economics, University of Houston.
  • Handle: RePEc:hou:wpaper:2004-04
    as

    Download full text from publisher

    File URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/2004-04.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
    2. Ransom, Roger L. & Sutch, Richard, 1986. "The Labor of Older Americans: Retirement of Men On and Off the Job, 1870–1937," The Journal of Economic History, Cambridge University Press, vol. 46(1), pages 1-30, March.
    3. Sala-i-Martin, Xavier X, 1996. "A Positive Theory of Social Security," Journal of Economic Growth, Springer, vol. 1(2), pages 277-304, June.
    4. Yukio Noguchi & David A. Wise, 1994. "Introduction to "Aging in the United States and Japan: Economic Trends"," NBER Chapters, in: Aging in the United States and Japan: Economic Trends, pages 1-6, National Bureau of Economic Research, Inc.
    5. Zvi Eckstein & Pedro Mira & Kenneth I. Wolpin, 1999. "A Quantitative Analysis of Swedish Fertility Dynamics: 1751-1990," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 137-165, January.
    6. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
    7. Robin L. Lumsdaine & David A. Wise, 1994. "Aging and Labor Force Participation: A Review of Trends and Explanations," NBER Chapters, in: Aging in the United States and Japan: Economic Trends, pages 7-42, National Bureau of Economic Research, Inc.
    8. Carter, Susan B. & Sutch, Richard, 1996. "Myth of the Industrial Scrap Heap: A Revisionist View of Turn-of-the-Century American Retirement," The Journal of Economic History, Cambridge University Press, vol. 56(1), pages 5-38, March.
    9. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
    10. Pestieau, P., 2001. "Are We Retiring Too Early?," Liege - Groupe d'Etude des Mathematiques du Management et de l'Economie 2001/03, UNIVERSITE DE LIEGE, Faculte d'economie, de gestion et de sciences sociales, Groupe d'Etude des Mathematiques du Management et de l'Economie.
    11. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
    12. Jon R. Moen, 1988. "Past and current trends in retirement: American men from 1860 to 1980," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 16-27.
    13. Costa, Dora L., 1998. "The Evolution of Retirement," National Bureau of Economic Research Books, University of Chicago Press, number 9780226116082.
    14. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2002. "Vintage Human Capital, Demographic Trends, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 104(2), pages 340-375, June.
    15. Kalemli-Ozcan, Sebnem, 2003. "A stochastic model of mortality, fertility, and human capital investment," Journal of Development Economics, Elsevier, vol. 70(1), pages 103-118, February.
    16. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, vol. 88(2), pages 158-163, May.
    17. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
    18. Costa, Dora L, 1998. "The Evolution of Retirement: Summary of a Research Project," American Economic Review, American Economic Association, vol. 88(2), pages 232-236, May.
    19. Romain Duval, 2003. "The Retirement Effects of Old-Age Pension and Early Retirement Schemes in OECD Countries," OECD Economics Department Working Papers 370, OECD Publishing.
    20. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer.
    21. Naohiro Yashiro & Takashi Oshio, 1999. "Social Security and Retirement in Japan," NBER Chapters, in: Social Security and Retirement around the World, pages 239-267, National Bureau of Economic Research, Inc.
    22. Laurence J. Kotlikoff & Lawrence H. Summers, 1986. "The Contribution of Intergenerational Transfers to Total Wealth: A Reply," NBER Working Papers 1827, National Bureau of Economic Research, Inc.
    23. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
    24. Gary S. Fields & Olivia S. Mitchell, 1984. "Retirement, Pensions, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262060914, February.
    25. Courtney Coile & Jonathan Gruber, 2007. "Future Social Security Entitlements and the Retirement Decision," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 234-246, May.
    26. C. Lee, 1998. "Life Cycle Savings in the United States, 1900-1990," CPE working papers 0014, University of Chicago - Centre for Population Economics.
    27. Clarence D. Long, 1958. "The Labor Force under Changing Income and Employment," NBER Books, National Bureau of Economic Research, Inc, number long58-1.
    28. Yukio Noguchi & David A. Wise, 1994. "Aging in the United States and Japan: Economic Trends," NBER Books, National Bureau of Economic Research, Inc, number nogu94-1.
    29. Dora L. Costa, 1998. "The Evolution of Retirement: An American Economic History, 1880-1990," NBER Books, National Bureau of Economic Research, Inc, number cost98-1.
    30. Julian L. Simon (ed.), 1997. "The economics of population," Books, Edward Elgar Publishing, volume 0, number 1076.
    31. C. Lee, "undated". "The Expected Length of Retirement in the United States, 1850-1990," CPE working papers 0013, University of Chicago - Centre for Population Economics.
    32. Moshe Hazan, 2009. "Longevity and Lifetime Labor Supply: Evidence and Implications," Econometrica, Econometric Society, vol. 77(6), pages 1829-1863, November.
    33. Michael R. Haines, 1994. "Estimated Life Tables for the United States, 1850-1900," NBER Historical Working Papers 0059, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. dʼAlbis, Hippolyte & Lau, Sau-Him Paul & Sánchez-Romero, Miguel, 2012. "Mortality transition and differential incentives for early retirement," Journal of Economic Theory, Elsevier, vol. 147(1), pages 261-283.
    2. Robalino, David A. & Zylberstajn, Eduardo & Zylberstajn, Helio & Afonso, Luis Eduardo, 2008. "An ex-ante evaluation of the impact of social insurance policies on labor supply in Brazil : the case for explicit over implicit redistribution," Social Protection Discussion Papers and Notes 90342, The World Bank.
    3. Frank van Erp & Niels Vermeer & Daniel van Vuuren, 2013. "Non-financial determinants of retirement," CPB Discussion Paper 243.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Blundell, R. & French, E. & Tetlow, G., 2016. "Retirement Incentives and Labor Supply," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 457-566, Elsevier.
    5. Holger Strulik & Katharina Werner, 2016. "50 is the new 30—long-run trends of schooling and retirement explained by human aging," Journal of Economic Growth, Springer, vol. 21(2), pages 165-187, June.
    6. Hostenkamp, Gisela & Stolpe, Michael, 2008. "Optimal health and retirement policies amid population aging," Kiel Working Papers 1428, Kiel Institute for the World Economy (IfW).
    7. Jeffrey A. Miron & David N. Weil, 1998. "The Genesis and Evolution of Social Security," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 297-322, National Bureau of Economic Research, Inc.
    8. Daniel K. Fetter & Lee M. Lockwood, 2018. "Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program," American Economic Review, American Economic Association, vol. 108(8), pages 2174-2211, August.
    9. Coile Courtney, 2004. "Retirement Incentives and Couples' Retirement Decisions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-30, July.
    10. Luc Behaghel & David M. Blau, 2012. "Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age," American Economic Journal: Economic Policy, American Economic Association, vol. 4(4), pages 41-67, November.
    11. Moshe Hazan, 2006. "Longevity and Hours over the Lifetime: Data and Implications," 2006 Meeting Papers 416, Society for Economic Dynamics.
    12. Robalino, David A. & Zylberstajn, Eduardo & Zylberstajn, Helio & Afonso, Luis Eduardo, 2009. "Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil," Social Protection Discussion Papers and Notes 52448, The World Bank.
    13. Carl-Johan Dalgaard & Holger Strulik, 2017. "The Genesis of the Golden Age: Accounting for the Rise in Health and Leisure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 132-151, March.
    14. Courtney Coile & Jonathan Gruber, 2001. "Social Security Incentives for Retirement," NBER Chapters, in: Themes in the Economics of Aging, pages 311-354, National Bureau of Economic Research, Inc.
    15. Chulhee Lee, 2007. "Long-Term Changes in the Economic Activity of Older Males in Korea," Economic Development and Cultural Change, University of Chicago Press, vol. 56(1), pages 99-123, October.
    16. Frank van Erp & Niels Vermeer & Daniel van Vuuren, 2013. "Non-financial determinants of retirement," CPB Discussion Paper 243, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Heijdra, Ben J. & Romp, Ward E., 2009. "Retirement, pensions, and ageing," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 586-604, April.
    18. Lanza Queiroz, Bernardo & Lobo Alves Ferreira, Matheus, 2021. "The evolution of labor force participation and the expected length of retirement in Brazil," The Journal of the Economics of Ageing, Elsevier, vol. 18(C).
    19. Hanel, Barbara & Riphahn, Regina T., 2012. "The timing of retirement — New evidence from Swiss female workers," Labour Economics, Elsevier, vol. 19(5), pages 718-728.
    20. Richard Johnson, 2000. "The effect of old-age insurance on male retirement : evidence from historical cross-country data," Research Working Paper RWP 00-09, Federal Reserve Bank of Kansas City.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hou:wpaper:2004-04. 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: (Dietrich Vollrath). General contact details of provider: https://edirc.repec.org/data/decuhus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.