Technical Progress and Early Retirement
Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA
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
Date posted: February 11, 2004