Local Labor Market Conditions and Retirement Behavior

Dan A. Black Xiaoli Liang

WP#2005-8

Abstract

In this paper, we explore the effect of local labor market conditions on the labor supply decisions of older workers. We use three different sources of variation: shocks to the US steel industry, shocks to Appalachian coal mining, and shocks to US manufacturing. While each experiment uses different methodology, the three tell a remarkably consistent story: the retirement decisions of Americans over the last thirty-five years have been affected by the performance of local labor markets. First, using variation induced by the decline in the US steel industry, we find that a 10 percent reduction in earnings resulting from the decline of the primary metals industry resulted in a 1.5 percent increase in the participation and expenditures of the Old Age program. Second, using variation in coal prices induced by oil shocks, we find that a 10 percent increase in earnings from the coal industry reduced participation about 0.9 percent and decreases expenditures about 1.2 percent. Finally, looking at variation induced by the concentration of manufacturing employment, we use micro data to examine the age and education levels of those who retired.