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Equilibrium Unemployment and Retirement

  • Hairault, Jean-Olivier


    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François


    (University of Le Mans)

  • Zylberberg, Andre


    (Université Paris 1 Panthéon-Sorbonne)

As a preliminary step, we first provide some new empirical evidence that labor market conditions affect retirement decisions at the individual level: unemployed people are more likely to retire. Our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to unveil the factors which explain why unemployed workers choose to retire earlier and the conditions under which this behavior is optimal. Two main conclusions emerge: the retirement decision of unemployed workers depends on the labor-market frictions whereas that of employed workers does not; the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal. Considering Social Security policy issues, we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare-optimizing in a second best world where the labor market equilibrium suffers from distortions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6511.

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Length: 30 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6511
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  1. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Life-Cycle Equilibrium Unemployment," IZA Discussion Papers 3396, Institute for the Study of Labor (IZA).
  2. Hairault, Jean-Olivier & Langot, François & Zylberberg, André, 2015. "Equilibrium unemployment and retirement," European Economic Review, Elsevier, vol. 79(C), pages 37-58.
  3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  4. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth," NBER Working Papers 9183, National Bureau of Economic Research, Inc.
  5. Chan, Sewin & Stevens, Ann Huff, 2001. "Job Loss and Employment Patterns of Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 484-521, April.
  6. Ludo Visschers & Irina Telyukova & Guido Menzio, 2011. "Directed search over the life cycle," 2011 Meeting Papers 1360, Society for Economic Dynamics.
  7. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows," Post-Print hal-01020784, HAL.
  8. Courtney C. Coile & Phillip B. Levine, 2006. "Bulls, Bears, and Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 59(3), pages 408-429, April.
  9. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2009. "Efficiency in a Search and Matching Model with Endogenous Participation," IZA Discussion Papers 4097, Institute for the Study of Labor (IZA).
  10. 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.
  11. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  12. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  13. Julen Esteban‐Pretel & Junichi Fujimoto, 2014. "Life‐Cycle Labor Search With Stochastic Match Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 575-599, 05.
  14. Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed III, 2001. "Labor Market Search and Optimal Retirement Policy," NBER Working Papers 8591, National Bureau of Economic Research, Inc.
  15. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  16. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  17. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
  18. Coile, Courtney C. & Levine, Phillip B., 2007. "Labor market shocks and retirement: Do government programs matter?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1902-1919, November.
  19. Menzio, Guido & Telyukova, Irina A. & Visschers, Ludo, 2015. "Directed Search over the Life Cycle," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-48, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  20. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, vol. 76(1), pages 1-29, 01.
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