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Joint Labour Supply Dynamics of Older Couples

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  • Michaud, Pierre-Carl

    () (HEC Montreal)

Abstract

This paper studies the labour force participation dynamics of older couples in the United States. Longitudinal data from the five available waves of the Health and Retirement Study (HRS) is used to investigate if the dynamics introduced by considering both spouses’ behavior provide additional information in trying to fit observed participation sequences. The paper uses a bivariate dynamic binary choice model with unobserved heterogeneity and serial correlation to disentangle the many sources of dynamics and correlation in a couple’s decision making. First, strong true state-dependence is found and results in a bunching of participation and non-participation sequences. Cross-spouse state-dependence is also found which points to indirect effects of social security and pension incentives through complementarity in leisure. Second, the Spouse Allowance program is found to have predicted effects on participation of the couple and these effects are statistically significant. A simulation exercise presents evidence that the elimination of the spouse allowance can raise participation of wives at age 62 by more than the decrease in participation of husbands at age 65.

Suggested Citation

  • Michaud, Pierre-Carl, 2003. "Joint Labour Supply Dynamics of Older Couples," IZA Discussion Papers 832, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp832
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    References listed on IDEAS

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    1. Michael Baker, 2002. "The Retirement Behavior of Married Couples: Evidence from the Spouse's Allowance," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 1-34.
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    Cited by:

    1. García-Gómez, Pilar & Jones, Andrew M. & Rice, Nigel, 2010. "Health effects on labour market exits and entries," Labour Economics, Elsevier, vol. 17(1), pages 62-76, January.
    2. Michaud, Pierre-Carl & Vermeulen, Frederic, 2004. "A Collective Retirement Model: Identification and Estimation in the Presence of Externalities," IZA Discussion Papers 1294, Institute for the Study of Labor (IZA).
    3. Laura Hospido & Gema Zamarro, 2014. "Retirement patterns of couples in Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-18, December.
    4. Macchiarelli, Corrado & Aranki, Ted, 2013. "Employment duration and shifts into retirement in the EU," Working Paper Series 1517, European Central Bank.
    5. Danilo Cavapozzi, 2008. "Health and Labor Supply Dynamics of Older Married Workers," "Marco Fanno" Working Papers 0073, Dipartimento di Scienze Economiche "Marco Fanno".
    6. Alan L. Gustman & Thomas Steinmeier, 2009. "Integrating Retirement Models," NBER Working Papers 15607, National Bureau of Economic Research, Inc.
    7. repec:spr:jlabre:v:38:y:2017:i:4:d:10.1007_s12122-017-9258-3 is not listed on IDEAS
    8. Robert L. Clark & Robert G. Hammond & Christelle Khalaf & Melinda Sandler Morrill, 2017. "Planning for Retirement? The Importance of Time Preferences," NBER Working Papers 23501, National Bureau of Economic Research, Inc.
    9. repec:eee:labeco:v:46:y:2017:i:c:p:177-188 is not listed on IDEAS
    10. Nigel Rice & Jennifer Roberts & Andrew M. Jones, 2006. "Sick of work or too sick to work? Evidence on health shocks and early retirement from the BHPS," Health, Econometrics and Data Group (HEDG) Working Papers 06/13, HEDG, c/o Department of Economics, University of York.
    11. Laura Hospido, 2015. "Pension reform and couples' joint retirement decisions," IZA World of Labor, Institute for the Study of Labor (IZA), pages 142-142, April.
    12. Diana Warren, 2013. "Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement," Melbourne Institute Working Paper Series wp2013n41, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    13. Lalive, Rafael & Parrotta, Pierpaolo, 2016. "How Does Pension Eligibility Affect Labor Supply in Couples?," IZA Discussion Papers 10361, Institute for the Study of Labor (IZA).
    14. Alan Gustman & Thomas Steinmeier, 2008. "How Does Modeling of Retirement Decisions at the Family Level Affect Estimates of the Impact of Social Security Policies on Retirement?," Working Papers wp179, University of Michigan, Michigan Retirement Research Center.
    15. Anne C. Gielen, 2009. "Working hours flexibility and older workers' labor supply," Oxford Economic Papers, Oxford University Press, vol. 61(2), pages 240-274, April.
    16. Jones, Andrew M. & Rice, Nigel & Roberts, Jennifer, 2010. "Sick of work or too sick to work? Evidence on self-reported health shocks and early retirement from the BHPS," Economic Modelling, Elsevier, vol. 27(4), pages 866-880, July.
    17. Stephen Shore, 2015. "The co-movement of couples’ incomes," Review of Economics of the Household, Springer, vol. 13(3), pages 569-588, September.
    18. Zhiyang Jia, 2005. "Spousal Influence on Early Retirement Behavior," Discussion Papers 406, Statistics Norway, Research Department.

    More about this item

    Keywords

    labour supply of couples; retirement; dynamic panel data models;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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