WP#2008-18

Abstract

The ability to retire at an age and in a manner of one’s choosing depends on one’s ability to retain or find employment at older ages, which depends in turn on local labor market conditions. We investigate how local labor markets affect retirement transitions. We match households from the Health and Retirement Study to MSA unemployment rates and estimate multinomial logit regressions on annual job transitions.

We find that the MSA unemployment rate has large and statistically significant effects on job transitions. The estimated effects are stronger for men than women and tend to be stronger for semi-skilled workers. The unemployment rate has a negative effect on the likelihood of voluntary exit to either a new job (especially part-time) or retirement, and a positive effect on involuntary exit to retirement. A one percentage point increase in the MSA unemployment rate raises the likelihood of voluntary exit to a new job by 8.5%, reduces the likelihood of voluntary exit to retirement by 1.9%, and raises the likelihood of involuntary exit to retirement by 5.7%. Thus, high unemployment rates raises involuntary exits and constrains the ability of others to transition into retirement in a manner of their choosing.

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Leora Friedberg is an associate professor of economics at the University of Virginia. She is also a faculty research fellow with the Aging and Public Economics Programs at the National Bureau of Economic Research, a junior fellow at the Max Planck International Research Network on Aging, and a TIAA-CREF Institute Fellow. Michael T. Owyang is a research officer at the Federal Reserve Bank of St. Louis. Anthony Webb is a research economist at the Center for Retirement Research at Boston College.