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The Effect of Social Security, Health, Demography and Technology on Retirement

  • Ferreiray, Pedro Cavalcanti
  • Santos, Marcelo Rodrigues

This article investigates the causes in the reduction of labor force participation of the old. We argue that the changes in social security policy and in technology, and the introduction of Medicare may account for most of the changes in retirement over the second part of the last century in the U.S. economy. We develop a dynamic general equilibrium model with endogenous retirement that embeds social security legislation and Medicare. The model is able to match very closely the increase in the retirement rate of American males and also to reproduce many stylized facts, such as retirement rate by age, by health status and income. We find that changes in social security policy - that became much more generous - account for a sizeable part of the expansion aggregate retirement rate (45% of the observed increase). They also explain, together with Medicare, most of the variation of the retirement profile by age. We found that wealth shocks can influence retirement behavior, so that the strong run-up in stock market in the nineties may have affected the decision of older workers to leave the labor force

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Paper provided by Insper Working Paper, Insper Instituto de Ensino e Pesquisa in its series Insper Working Papers with number wpe_274.

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Date of creation: Oct 2012
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Handle: RePEc:ibm:ibmecp:wpe_274
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