| 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. |