Working Paper: NBER ID: w10779
Authors: Courtney C. Coile; Phillip B. Levine
Abstract: The historic boom and bust in the stock market over the past decade had the potential to significantly alter the retirement behavior of older workers. Previous research examining the impact of wealth shocks on labor supply supports the plausibility of this hypothesis. In this paper, we examine the relationship between stock market performance and retirement behavior using the Health and Retirement Study (HRS), Current Population Survey (CPS), and Survey of Consumer Finances (SCF). We first present a descriptive analysis of the wealth holdings of older households and simulate the labor supply response among stockholders necessary to generate observed patterns in retirement. We show that few households have substantial stock holdings and that they would have to be extremely responsive to market fluctuations to explain observed labor force patterns. We then exploit the unique pattern of boom and bust along with variation in stock exposure to generate a double quasi-experiment, comparing the retirement and labor force re-entry patterns over time of those more and less exposed to the market. Any difference in behavior that emerged during the boom should have reversed itself during the bust. We find no evidence that changes in the stock market drive aggregate trends in labor supply.
Keywords: retirement behavior; stock market fluctuations; labor supply; wealth shocks
JEL Codes: J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stock market fluctuations (E32) | Retirement behavior (J26) |
| Greater stock exposure (G19) | Higher likelihood of retiring during market booms (J26) |
| Greater stock exposure (G19) | Decreased likelihood of retiring during market busts (J26) |
| Individuals without a pension plan (H55) | Retirement rate fell more during the bust (J26) |
| Percentage change in the S&P 500 index (C43) | Retirement rates (J26) |