Labor Market Search and Optimal Retirement Policy

21 Pages Posted: 10 Nov 2001 Last revised: 24 Oct 2010

See all articles by Joydeep Bhattacharya

Joydeep Bhattacharya

Iowa State University - Department of Economics

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Robert R. Reed III

University of Kentucky - Gatton College of Business and Economics

Date Written: November 2001

Abstract

A popular view about social security, dating back to its early days of inception, is that it is a means for young, unemployed workers to 'purchase' jobs from older, employed workers. The question we ask is: Can social security, by encouraging retirement and hence creating job vacancies for the young, improve the allocation of workers to jobs in the labor market? Using a standard model of labor market search, we establish that the equilibrium with no policy-induced retirement can be efficient. Even under worst-case parameterizations of our model, we find that public retirement programs pay the elderly substantially more than labor market search theory implies that their jobs are worth. An important effect, ignored by the popular view, is that the creation of a vacant job by a retirement reduces the value of other vacant jobs.

Suggested Citation

Bhattacharya, Joydeep and Mulligan, Casey B. and Reed, Robert, Labor Market Search and Optimal Retirement Policy (November 2001). NBER Working Paper No. w8591. Available at SSRN: https://ssrn.com/abstract=290397

Joydeep Bhattacharya (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-5886 (Phone)
515-294-0221 (Fax)

Casey B. Mulligan

University of Chicago ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-9017 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert Reed

University of Kentucky - Gatton College of Business and Economics ( email )

Department of Economics
Lexington, KY 40506
United States

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