The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement

Abstract

Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. The net effect of the current economic crisis on retirement is thus far from clear. In this paper, we use 30 years of data from the March Current Population Survey to estimate models relating retirement decisions to fluctuations in equity, housing, and labor markets. We find that workers age 62 to 69 are responsive to the unemployment rate and to long-run fluctuations in stock market returns. Less-educated workers are more sensitive to labor market conditions and more-educated workers are more sensitive to stock market conditions. We find no evidence that workers age 55 to 61 respond to these fluctuations or that workers at any age respond to fluctuating housing markets. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.

The Effects of Downturns on Labour Force Participation

“…Therefore these baseline estimates imply that any participation-increasing effects are typically more than offset on average by other participation-reducing factors. This is in line with recent microeconometric analysis for the United States which finds that incentives to delay the retirement decision stemming from the 2007-2008 asset price crash should be more than offset by the discouragement effects associated with depressed labour markets (Coile and Levine, 2009). …”

House Prices and Marital Stability

“…Mian and Sufi, 2010), and labor supply (e.g. Coile and Levine, 2009;Farnham and Sevak, 2010). However, aside from anecdotal evidence in the popular press, there has been little research on the effect of house-price changes on divorce.…”

House prices, wealth effects and labor supply

“…Blundell et al (2013) for the UK, and French and Benson (2011) and Daly, Kwok and Hobijn (2009) for the US all argue that asset price declines may be one reason why labor supply in the post-2008 recession remained higher than in previous recessions due to delayed retirement. However Coile and Levine (2011), find evidence that labor market changes dominate non-housing asset (wealth) effects in explaining patterns of retirement over the business cycle 2 . One prior study on the role of housing by Farnham and Sevak (2007) using an earlier sample of US data from the Health and Retirement Study finds house price gains typically cause households to bring forward their intended retirement date.…”