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Knowledge and Information Systems

, Volume 54, Issue 3, pp 617–631 | Cite as

A computational model of labor market participation with health shocks and bounded rationality

  • Alessandro Moro
  • Paolo Pellizzari
Regular Paper

Abstract

This paper presents a computational agent-based model of labor market participation, in which a population of agents, affected by adverse health shocks that impact the costs associated with working efforts, decides whether to leave the labor market and retire. This decision is simply taken by looking at the working behaviors of the other agents, comparing the respective levels of well-being and imitating the more advantageous decision of others. The analysis reveals that such mechanism of social learning and imitation suffices to replicate the existing empirical evidence regarding the decline in labor market participation of older people. As a consequence, the paper demonstrates that it is not necessary to assume perfect and unrealistic rationality at the individual level to reproduce a rational behavior in the aggregate.

Keywords

Labor market participation Health shocks Bounded rationality Agent-based modeling 

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Copyright information

© Springer-Verlag London Ltd. 2017

Authors and Affiliations

  1. 1.Statistical Data Collection and Processing Directorate, External Statistics DivisionBank of ItalyRomeItaly
  2. 2.Department of EconomicsCa’ Foscari UniversityVeniceItaly

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