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 likely increase
the reliance that most older workers will have on public social insurance programs,
exactly at a time that public finances are suffering from a large drop in contributions.
Our paper explicitly accounts for employment uncertainty and unexpected
wealth ...
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 likely increase
the reliance that most older workers will have on public social insurance programs,
exactly at a time that public finances are suffering from a large drop in contributions.
Our paper explicitly accounts for employment uncertainty and unexpected
wealth shocks, something that has been relatively overlooked in the literature, but
that has grown in importance in recent years. 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. Our benchmark model explains with great accuracy the strikingly
high proportion of individuals who claim benefits exactly at the Early Retirement
Age, while still explaining the increased claiming hazard at the Normal Retirement
Age. We also discuss some policy experiments and their interplay with employment
uncertainty. Additionally, we analyze the effects of negative wealth shocks on the
labor supply and claiming decisions of older Americans. Our results can explain
why early claiming has remained very high in the last years even as the early retirement
penalties have increased substantially compared with previous periods, and
why labor force participation has remained quite high for older workers even in the
midst of the worse employment crisis in decades.
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