Labor Force Transitions at Older Ages: Burnout, Recovery, and Reverse Retirement

44 Pages Posted: 29 Jun 2016 Last revised: 21 Sep 2016

See all articles by Lindsay Jacobs

Lindsay Jacobs

University of Wisconsin - Madison - La Follette School of Public Affairs

Suphanit Piyapromdee

University College London

Date Written: April, 2016

Abstract

Partial and reverse retirement are two key behaviors characterizing labor force dynamics for individuals at older ages, with half working part-time and over a third leaving and later re-entering the labor force. The high rate of exit and re-entry is especially surprising given the declining wage profile at older ages and opportunities for re-entry in the future being uncertain. In this paper we study the effects of wage and health transition processes as well as the role of accrues work-related strain on the labor force participation on older males. We find that a model incorporating a work burnout-recovery process can account for such reverse retirement behavior that cannot be generated by health and wealth shocks alone, suggesting re-entry patterns result in large part from planned behavior. We first present descriptive statistics of the frequency and timing of re-entry and characteristics of those who re-enter using Health and Retirement Study (HRS) panel data. We then develop and estimate a dynamic model of retirement that captures the occurrence and timing of re-entry decisions observed in the data-as well as the transition to part-time work-while incorporating uncertainty in earnings, health, and stress accumulation. The burnout-recovery process allows us to account for about 40 percent of re-entry, and one-quarter of the shifts to part-time work with age. We also consider the lower exit and re-entry rates after 2008, and attribute this to high option values of work in an environment where future re-entry is less certain. Consistent with our burnout-recovery model, we see that respondents are more likely to report high levels of job stress as they continue to work when they would have otherwise stopped working, recovered, and re-entered. This offers us some information about the relative option value of work versus the burnout-recovery process.

JEL Classification: J26, J14, D91

Suggested Citation

Jacobs, Lindsay and Piyapromdee, Suphanit, Labor Force Transitions at Older Ages: Burnout, Recovery, and Reverse Retirement (April, 2016). FEDS Working Paper No. 2016-53, Available at SSRN: https://ssrn.com/abstract=2801985 or http://dx.doi.org/10.17016/FEDS.2016.053

Lindsay Jacobs (Contact Author)

University of Wisconsin - Madison - La Follette School of Public Affairs ( email )

1225 Observatory Drive
Madison, WI 53705
United States

Suphanit Piyapromdee

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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