Labor Market Shocks and Retirement: Do Government Programs Matter?

38 Pages Posted: 8 Oct 2006 Last revised: 7 Feb 2010

See all articles by Courtney Coile

Courtney Coile

Wellesley College; National Bureau of Economic Research (NBER)

Phillip B. Levine

Wellesley College; National Bureau of Economic Research (NBER)

Date Written: October 2006

Abstract

This paper examines how unemployment affects retirement and whether the Unemployment Insurance (UI) system and Social Security (SS) system affect how older workers respond to labor market shocks. To do so, we use pooled cross-sectional data from the March Current Population Survey (CPS) as well as March CPS files matched between one year and the next and longitudinal data from the Health and Retirement Survey (HRS). We find that downturns in the labor market increase retirement transitions. The magnitude of this effect is comparable to that associated with moderate changes in financial incentives to retire and to the threat of a health shock to which older workers are exposed. Interestingly, retirements only increase in response to an economic downturn once workers become SS-eligible, suggesting that retirement benefits may help alleviate the income loss associated with a weak labor market. We also estimate the impact of UI generosity on retirement and find little consistent evidence of an effect. This suggests that in some ways SS may serve as a more effective form of unemployment insurance for older workers than UI.

Suggested Citation

Coile, Courtney and Levine, Phillip B., Labor Market Shocks and Retirement: Do Government Programs Matter? (October 2006). NBER Working Paper No. w12559. Available at SSRN: https://ssrn.com/abstract=934754

Courtney Coile (Contact Author)

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2408 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Phillip B. Levine

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2162 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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