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Unemployment and the Retirement Decisions of Older Workers

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Abstract

This paper examines how unemployment late in workers’ careers affects retirement timing. Using data from the Survey of Income and Program Participation from 1996 to 2011, we document that unemployed workers permanently leave the labor force at a significantly higher rate than employed workers. This effect is stronger once workers become eligible for Social Security benefits. The effect of unemployment on retirement early in an unemployment spell is weaker for workers eligible for UI benefits. Unemployed workers, particularly those workers in households with below median wealth, also have a significantly higher rate of early Social Security uptake shortly after turning 62 relative to employed workers.

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Notes

  1. At the end of 2014, the U.S. unemployment rate among workers 55 through 64 years of age was 3.8 %, well below the current national average of 5.6 %. However, the average and median unemployment duration for workers 55 to 64 years of age was 54.6 and 20.5 weeks, respectively, compared to an overall average and median duration of 32.4 and 13.0 weeks, respectively (BLS).

  2. In 2013, 30 % of long-term unemployed were over 50 years of age, while the same age group only made up 20 % of short-term unemployed (Krueger et al. 2014).

  3. Also using the HRS, Goda et al. (2011) and Gustman et al. (2011) study the wealth effect from asset market fluctuations on the retirement decision.

  4. Respondents are interviewed three times per year about their experiences over the previous fourth months. Some “core” information is collected at every interview, while other “topical” information is collected less frequently.

  5. We do not restrict the sample further by gender or race but require the topical asset module to have been answered at least once. The results are qualitatively and quantitatively similar for a male only sample.

  6. While the SIPP includes a question on the reason for job loss, the response is missing for about one third of all job losses. Restricting the sample to only those who responded having had an involuntary job loss renders the sample too small for the detailed duration analysis. However, pooling unemployment duration leads to qualitatively similar results between both samples; the monthly retirement hazard for those eligible for early social security benefits is 3.9 percentage points following an involuntary separation, rather than 5.0 percentage points in the sample including all job losses.

  7. The primary reason for grouping into quartiles based on net worth instead of using the raw measure of wealth is that total net worth in the SIPP supplemental questionnaire is underreported, particularly for wealthy households (Czajka et al. 2003).

  8. 31.2 % of the individuals in our sample switch wealth quartiles during the interview period. Reassigning these individuals upon switch does not affect the results significantly.

  9. The difference in retirement at age 62 is statistically significant at the 10 % level.

  10. Full (normal) retirement age increased during the sample from 65 if born in 1937 or earlier to 66 if born between 1943 and 1954.

  11. We also include a quadratic polynomial in age and indicator variables for the person being of early (E a r l y S Sage) and full Social Security (F u l l S S a g e) eligibility age. In addition, we include state and time fixed effects and an indicator variable for the nth observation in each panel, which controls for the fact that retirements are more likely to occur later in the panel due to the definition of retirement as exiting the labor force for the rest of the survey. We also include an indicator variable for the start of a new wave to address potential seam-bias problems.

  12. There are two potential concerns in proxying for UI eligibility in this way. First, takeup of government programs is known to be undereported in surveys (e.g. Meyer et al. 2009). The underreporting would cause a downward bias in our estimates. Second, takeup is not random; if individuals with lower job-finding probability and a greater income need are more likely to take up UI, this would bias our estimates upward.

  13. We omit periods with extensions shorter than 99 weeks to focus on the longest possible UI duration and a clear separation relative to the baseline of 26 weeks.

  14. Since the resulting table becomes very difficult to read due to the multitude of interaction terms and since accounting for health coverage does not change our results qualitatively, we present a simple regression table that excludes the duration controls to illustrate the main findings.

  15. We require individuals to start reporting income from Social Security within 6 months of the 62nd birthday. This requires an application for Social Security benefits within 2-3 months of turing 62, at the latest.

  16. We require individuals to start reporting income from Social Security within 6 months of the 62nd birthday. Due to the aforementioned processing time, this requires an application for Social Security benefits within 2–3 months of turing 62, at the latest.

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Authors and Affiliations

  1. Department of Economics and Business, Randolph–Macon College, Ashland, VA, 23005, USA

    Paul Marmora

  2. Department of Economics, Temple University, 1301 Cecil B. Moore Ave, Philadelphia, PA, 19122, USA

    Moritz Ritter

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  1. Paul Marmora
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  2. Moritz Ritter
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Correspondence to Moritz Ritter.

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Marmora, P., Ritter, M. Unemployment and the Retirement Decisions of Older Workers. J Labor Res 36, 274–290 (2015). https://doi.org/10.1007/s12122-015-9207-y

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