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New developments in the economic analysis of retirement

  • Economics
  • Political Science


The world's population is living longer but retiring earlier, and vast numbers of adults now spend as much as a third of their lifetimes relying on public and private retirement benefits. Consequently, labor economists are deeply interested in the forces driving retirement behavior, seeking to understand why people leave their jobs at young ages, how employers respond to an aging workforce, how government programs often induce job-leaving, and the economic consequences of retirement for individuals and society. This chapter examines new developments in retirement economics, focusing first on retirement trends and retiree wellbeing. We next turn to theoretical developments in the retirement literature where new models have enriched our understanding of the role of worker heterogeneity and uncertainty about health and productivity shocks. Lastly, we review some of the lessons that may drawn from the empirical analysis of retirement patterns undertaken over the last decade, showing how natural experiments and exciting new longitudinal datasets afford new opportunities to learn about the demand for and supply of older workers. We conclude that future researchers would do well to explore how retirement decisions are made in a household context, and to integrate saving as well as consumption in the labor supply decision. In addition we argue that much remains to be learned about how workers form expectations regarding their future retirement wellbeing, and about how they adapt when expectations need to be adjusted due to changes in economic, health, family, and other circumstances.

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