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Technical Progress and Early Retirement

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

February 2004

KSG Working Paper No. RWP02-007

This paper claims that technical progress induces early retirement of older workers. It presents a model where human capital is technology specific, so that technical progress erodes some existing human capital. This affects mostly older workers, who have a smaller incentive to learn the new technology, since their career horizon is shorter. Hence, they tend to work less. We find support to this erosion effect in HRS data, which shows that retirement and unemployment of older workers are positively related to technical progress in their sectors. Unlike the effect across sectors, the model is ambiguous about the aggregate effect of technical progress on labor supply of older workers. While in sectors with many innovations it falls due to the erosion effect, in other sectors it increases due to higher wages. To examine which effect dominates we run a time series test using US data and find that the rate of average technical progress reduces aggregate labor force participation by the old. Namely, the erosion effect dominates.

Number of Pages in PDF File: 41

Keywords: Technical Progress, Human Capital, Early Retirement, Labor Force Participation

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Date posted: February 11, 2004  

Suggested Citation

Zeira, Joseph, Technical Progress and Early Retirement (February 2004). KSG Working Paper No. RWP02-007. Available at SSRN: https://ssrn.com/abstract=430560 or http://dx.doi.org/10.2139/ssrn.430560

Contact Information

Joseph Zeira (Contact Author)
Hebrew University of Jerusalem - Department of Economics ( email )
Mount Scopus
Jerusalem 91905, IL 91905
+972 2 588 3256 (Phone)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
LUISS Guido Carli, DPTEA ( email )
viale Pola 12
Roma, Roma 00198
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