Asynchronous Risk: Unemployment, Equity Markets, and Retirement Savings

Journal of Pension Economics and Finance 5(3):237-255 (November 2006)

Upjohn Institute Working Paper No. 05-114

37 Pages Posted: 1 Jun 2005 Last revised: 18 Oct 2013

See all articles by Jason S. Seligman

Jason S. Seligman

The Investment Company Institute

Jeffrey B. Wenger

RAND Corporation; American University - School of Public Affairs

Date Written: May 1, 2005

Abstract

The link between unemployment and pension accumulations is conceptually straightforward; periods of unemployment lead to lower pension contributions, and thus to lower accumulations. However, impacts on accumulation may differ as a result of the timing and frequency of unemployment spells. We hypothesize that unemployment is more likely during periods in which the equities market experiences greater than average returns, largely due to a lead/lag structure of the stock and labor markets, respectively. This would imply that workers may systematically miss opportunities to purchase equities through DC plans when prices are relatively low. To test this hypothesis, we match historic stock returns to stochastically generated unemployment spells for men and women across the earnings distribution. We find lower income workers suffer greater percentage losses in retirement savings as a result of more frequent spells of unemployment. Higher income worker losses are more greatly affected by the timing of unemployment relative to the equities market.

Keywords: Unemployment, retirement, savings, defined contribution, pensions, earnings distribution

JEL Classification: J28, J33, J65, H56

Suggested Citation

Seligman, Jason and Wenger, Jeffrey B., Asynchronous Risk: Unemployment, Equity Markets, and Retirement Savings (May 1, 2005). Journal of Pension Economics and Finance 5(3):237-255 (November 2006), Upjohn Institute Working Paper No. 05-114, Available at SSRN: https://ssrn.com/abstract=733584 or http://dx.doi.org/10.2139/ssrn.733584

Jason Seligman (Contact Author)

The Investment Company Institute ( email )

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2023265866 (Phone)
20005 (Fax)

Jeffrey B. Wenger

RAND Corporation ( email )

1776 Main Street
Santa Monica, CA
United States
310 393 0411 (Phone)

American University - School of Public Affairs ( email )

Washington, DC 20016
United States

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