Working Paper: NBER ID: w12559
Authors: Courtney C. Coile; Phillip B. Levine
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.
Keywords: labor market shocks; retirement; unemployment insurance; social security
JEL Codes: H55; J26; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment Rate (J64) | Retirement Hazard (J26) |
| Labor Market Conditions (J20) | Retirement Decisions (J26) |
| UI Generosity (D64) | Retirement Transitions (J26) |
| Retirement Hazard (J26) | Social Security Benefits (H55) |
| Labor Market Downturns (J63) | Retirement Transitions (J26) |