How Does Job Loss Affect the Timing of Retirement?

This paper estimates the extent to which reduced employment following job loss among older workers can be explained as a response to altered pension incentives and earnings opportunities. Using data from the Health and Retirement Study, we first examine how workers’ earnings, assets, pensions and the resulting financial incentive to retire are affected by job loss. We find important effects of job loss on the main financial components of workers’ incentive to retire. We then examine retirement behavior after job loss, controlling for these changed retirement incentives, along with any additional effects of displacement not captured by retirement incentives. We find that the observed increased rates of retirement among displaced workers go far beyond these purely financial considerations. Very little of the reduced employment among older job losers can be explained by changes in wages and pension-related retirement incentives. Other barriers to reemployment may be more important explanations for the low employment rates of recently displaced older workers.