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Understanding Earnings, Labor Supply, and Retirement Decisions

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  • Xiaodong Fan

    (University of New South Wales)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

  • Christopher Taber

    (University of Wisconsin-Madison)

Abstract

We develop and estimate a model in which individuals make decisions on consumption, human capital investment, labor supply, and retirement. Unlike all previous work, our model allows both an endogenous wage process (which is typically assumed exogenous in the human capital and earnings dynamics literature). In addition, we introduce health shocks. We estimate the model and match the life-cycle profiles of wages, hours and retirement from SIPP data. We analyze the impact of health shocks on retirement, as well as the effect of changes in payroll taxes and increases in the Normal Retirement Age on labor force participation of older Americans.

Suggested Citation

  • Xiaodong Fan & Ananth Seshadri & Christopher Taber, 2017. "Understanding Earnings, Labor Supply, and Retirement Decisions," Working Papers wp367, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp367
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    File URL: http://mrdrc.isr.umich.edu/wp367/
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    Cited by:

    1. Richard Blundell & Monica Costa-Dias & David Goll & Costas Meghir, 2021. "Wages, Experience, and Training of Women over the Life Cycle," Journal of Labor Economics, University of Chicago Press, vol. 39(S1), pages 275-315.
    2. Menoncin, Francesco & Regis, Luca, 2020. "Optimal life-cycle labour supply, consumption, and investment: The role of longevity-linked assets," Journal of Banking & Finance, Elsevier, vol. 120(C).

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