Do Older Workers Change Their Labor Supply in Response to Housing Wealth Shocks?

Do older workers change their labor supply in response to unexpected housing wealth losses (or gains)? Housing wealth is the largest component in most older Americans’ portfolios, and they may seek to recoup losses by working longer to help smooth consumption in retirement. Despite its importance, prior studies have not arrived at a consensus answer. I perform three different analyses to re-approach this question using Health and Retirement Study (HRS) data: a descriptive analysis, two separate differences-in-differences-indifferences analyses exploiting the China Shock and the Great Recession, and an analysis employing autoregressive models for estimating unexpected shocks to housing price appreciation. All three analyses concur that older homeowners do not significantly change their labor supply or Social Security claiming behavior in response to unexpected housing wealth gains or losses. Subgroup analyses suggest that college-educated workers may be the most responsive, even though housing wealth makes up a lower share of their total wealth, probably due to their comparably greater employment resiliency in weak labor markets.