Understanding Earnings, Labor Supply and Retirement Decisions

Published: 2017
Project ID: UM17-03


We develop and estimate a model in which individuals make decisions on consumption, human capital investment, labor supply, and retirement. Unlike all previous work, our model allows both an endogenous wage process (which is typically assumed exogenous in the retirement and Social Security literature) and an endogenous retirement decision (which is typically assumed exogenous in the human capital and earnings dynamics literature). In addition, we introduce health shocks. We plan to estimate the model using the to match the life-cycle profiles of wages, hours, and retirement from SIPP data. The model is designed to analyze the impact of health shocks on retirement as well the effect of changes in payroll taxes and the Normal Retirement Age on the labor- force participation of older Americans.