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Labor Market Search and Optimal Retirement Policy

  • Bhattacharya, Joydeep
  • Mulligan, Casey
  • Reed, Robert

A popular view about social security, dating back to its early days of inception, is that it is a means for young, unemployed workers to "purchase" jobs from older, employed workers. The question we ask is: Can social security, by encouraging retirement and hence creating job vacancies for the young, improve the allocation of workers to jobs in the labor market? Using a standard model of labor market search, we establish that the equilibrium with no policy-induced retirement can be efficient. Even under worst-case parameterizations of our model, we find that public retirement programs pay the elderly substantially more than labor market search theory implies that their jobs are worth. An important effect, ignored by the popular view, is that the creation of a vacant job by a retirement reduces the value of other vacant jobs.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p1829-2004-10-01.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10251.

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Date of creation: 01 Mar 2003
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Publication status: Published in Economic Inquiry, October 2004, vol. 42 no. 4, pp. 560-571
Handle: RePEc:isu:genres:10251
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Casey B. Mulligan, 2000. "Can Monopoly Unionism Explain Publicly Induced Retirement?," NBER Working Papers 7680, National Bureau of Economic Research, Inc.
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