Dynamic Models of Individual and Household Retirement Behavior

Download or read book Dynamic Models of Individual and Household Retirement Behavior written by and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter I formulate a dynamic model of employment and saving decisions with costly job search and exogenous layoffs to study how late career job loss impacts the lifetime income and labor supply. I show that older displaced workers lose up to 7% of their remaining lifetime consumption, the loss being largely explained by the wage penalty. The cost of layoffs is highest for workers in the lowest three deciles of the wealth distribution and peaks for those laid off in their early sixties. While the majority of displaced workers reduce their lifetime labor supply in response to an involuntary job loss, up to 20% choose to work longer. The decision to postpone retirement is associated with higher pre-displacement wages. Workers who were approaching retirement at the onset of the Great Recession will increase their labor supply by approximately five months in response to the joint impact of changes in the value of household assets and the probabilities of losing and finding a job. In the second chapter I address the coordination of retirement timing in the households with two decision makers. I estimate a dynamic model of optimal retirement and labor supply decisions and find that leisure of husbands and wives are gross substitutes. The model generates a distribution of optimal retirement timing that closely mimics the outcomes observed in the sample. A counterfactual experiment indicates that coordination of retirement is much lower without family specific provisions of the Social Security Act. In the third chapter I estimate the consequences of job loss at older age on the household level. I show that older males whose spouses contributed at least 40% of the household earnings work 23% hours more a year after wife's job loss. This increase is comparable to the added worker effect for older females. I further propose a life-cycle model of labor supply, savings and job search decisions in two-member households with limited commitment. Simulations based on the model confirm that job loss of a spouse increases the lifetime labor supply. Estimated effects are positively related to the amount of lost earnings.