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Coordinating the Household Retirement Decision

Author

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  • Irina Merkurieva

    () (University of St Andrews)

Abstract

This paper explores the sources of retirement synchronization in dual career households. Empirical evidence suggests that the majority of couples retires within a short period of time, too tight to be explained by age differences alone. This retirement coordination is frequently attributed to the complementarity of the spouses' leisure. Contrary to this view, I find that the quantities of leisure consumed by husbands and wives are gross substitutes. Using a dynamic programming model of optimal retirement and labor supply decisions, I further show that the most important source of retirement coordination is unobserved heterogeneity of tastes for consumption and leisure.

Suggested Citation

  • Irina Merkurieva, 2018. "Coordinating the Household Retirement Decision," Discussion Paper Series, School of Economics and Finance 201707, School of Economics and Finance, University of St Andrews, revised 08 Jun 2018.
  • Handle: RePEc:san:wpecon:1707
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1707.pdf
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    References listed on IDEAS

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    1. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
    2. Alan L. Gustman & Thomas L. Steinmeier, 2004. "Social security, pensions and retirement behaviour within the family," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 723-737.
    3. John C. Ham, 1982. "Estimation of a Labour Supply Model with Censoring Due to Unemployment and Underemployment," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 335-354.
    4. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
    5. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    6. Coile Courtney, 2004. "Retirement Incentives and Couples' Retirement Decisions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-30, July.
    7. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    8. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    9. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    10. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, January.
    11. Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-545, July.
    12. Kniesner, Thomas J, 1976. "An Indirect Test of Complementarity in a Family Labor Supply Model," Econometrica, Econometric Society, vol. 44(4), pages 651-669, July.
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    More about this item

    Keywords

    retirement; intertemporal household choice; leisure complementarity;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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