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Late Career Job Loss and the Decision to Retire

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  • Irina Merkurieva

    (University of St Andrews)

Abstract

This paper provides an empirical analysis of the effect of involuntary job loss on the lifetime income and labor supply of older workers. I develop and estimate a dynamic programming model of retirement with savings, costly job search and exogenous layoffs. The average cost of job loss is equivalent to one year of pre- displacement earnings, 70% of which is due to the wage reduction and 30% to the search frictions. Displaced workers on average retire fourteen months earlier. However, workers who approached retirement during the Great Recession will work approximately five months longer in response to the contemporaneous financial and labor market shocks.

Suggested Citation

  • Irina Merkurieva, 2018. "Late Career Job Loss and the Decision to Retire," Discussion Paper Series, School of Economics and Finance 201606, School of Economics and Finance, University of St Andrews.
  • Handle: RePEc:san:wpecon:1606
    as

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    File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1606.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    retirement; displacement; life-cycle labor supply; layoff cost; search; job loss;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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