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The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers

  • Hugo Benitez-Silva

    ()

    (Department of Economics, Stony Brook University)

  • J. Ignacio Garcia-Perez

    ()

    (Universidad Pablo de Olavide and FEDEA)

  • Sergi Jimenez-Martin Author-Email: sergi.jimenez@upf.edu

    (Universitat Pompeu Fabra, Barcelona GSE and FEDEA)

Unemployment rates in developed countries have recently reached levels not seen in a generation, and workers of all ages are facing increasing probabilities of losing their jobs and considerable losses in accumulated assets. These events have increased the reliance that most (older) workers have on public social insurance programs, exactly at a time that public finances are suffering from a large drop in contributions. Using administrative and household level data we empirically characterize a Life- Cycle model of retirement and claiming decisions in terms of the employment, wage, health, and mortality uncertainty faced by individuals. We analyze the role of three intertwined factors in the recent evolution of work and retirement benefits claiming behavior in the United States; namely, higher unemployment uncertainty, higher unemployment benefits, and wealth shocks. We find that higher employment uncertainty reduces work and increases early claiming, while higher unemployment benefits mildly reduce work and reduce claiming at early ages. Finally, wealth shocks increase both early claiming and work. When all these factors are combined, the final outcome is a mild decline in labor supply and little variation in early claiming.

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File URL: http://www.stonybrook.edu/economics/research/papers/2012/NEWUSA-V48.pdf
File Function: First version, 2012
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Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 12-12.

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Date of creation: Oct 2012
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Handle: RePEc:nys:sunysb:12-12
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