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The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement

  • Courtney Coile
  • Phillip B. Levine

Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. The net effect of the current economic crisis on retirement is thus far from clear. In this paper, we use 30 years of data from the March Current Population Survey to estimate models relating retirement decisions to fluctuations in equity, housing, and labor markets. We find that workers age 62 to 69 are responsive to the unemployment rate and to long-run fluctuations in stock market returns. Less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. We find no evidence that workers age 55 to 61 respond to these fluctuations or that workers at any age respond to fluctuating housing markets. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15395.

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Date of creation: Oct 2009
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Publication status: published as Courtney C. Coile & Phillip B. Levine, 2011. "The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 11(1), pages 22.
Handle: RePEc:nbr:nberwo:15395
Note: AG LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. 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.
  2. Courtney C. Coile & Phillip B. Levine, 2004. "Bulls, Bears, and Retirement Behavior," NBER Working Papers 10779, National Bureau of Economic Research, Inc.
  3. Hallberg, Daniel, 2008. "Economic fluctuations and retirement of older employees," Working Paper Series 2008:2, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  4. Chan Sewin & Stevens Ann H, 2004. "How Does Job Loss Affect the Timing of Retirement?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-26, May.
  5. Note: For best results & the figures should be printed on a non-Postscript printer. Hoynes & H., . "The Employment, Earnings, and Income of Less-Skilled Workers over the Business Cycle," Institute for Research on Poverty Discussion Papers 1199-99, University of Wisconsin Institute for Research on Poverty.
  6. Leora Friedberg & Anthony Webb, 2005. "Retirement and the Evolution of Pension Structure," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
  7. Purvi Sevak, 2002. "Wealth Shocks and Retirement Timing: Evidence from the Nineties," Working Papers wp027, University of Michigan, Michigan Retirement Research Center.
  8. Janet Currie & Brigitte C. Madrian, 1998. "Health, Health Insurance and the Labor Market," JCPR Working Papers 27, Northwestern University/University of Chicago Joint Center for Poverty Research.
  9. Ann Huff Stevens & Sewin Chan, 1999. "Employment and Retirement Following a Late-Career Job Loss," American Economic Review, American Economic Association, vol. 89(2), pages 211-216, May.
  10. Brigitte C. Madrian & Lars John Lefgren, 1999. "A Note on Longitudinally Matching Current Population Survey (CPS) Respondents," NBER Technical Working Papers 0247, National Bureau of Economic Research, Inc.
  11. Michael D. Hurd & Monika Reti & Susann Rohwedder, 2009. "The Effect of Large Capital Gains or Losses on Retirement," NBER Chapters, in: Developments in the Economics of Aging, pages 127-163 National Bureau of Economic Research, Inc.
  12. Alicia H. Munnell & Steven Sass & Mauricio Soto & Natalia Zhivan, 2006. "Has the Displacement of Older Workers Increased?," Working Papers, Center for Retirement Research at Boston College wp2006-17, Center for Retirement Research, revised Sep 2006.
  13. Alan L. Gustman & Thomas Steinmeier, 2008. "How Changes in Social Security Affect Recent Retirement Trends," NBER Working Papers 14105, National Bureau of Economic Research, Inc.
  14. 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.
  15. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
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