NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Wages, Reservation Wages, and Retirement Decisions

Roger H. Gordon, Alan S. Blinder

NBER Working Paper No. 513 (Also Reprint No. r0142)
Issued in July 1980
NBER Program(s):      LS

The paper is an empirical cross-section study of the retirement decisions of American white men between the ages of 58 and 67. predicated on the theoretical notion that an individual retires when his reservation wage exceeds his market wage. Reservation wages are derived from an explicit utility function in which the most critical taste parameter is assumed to vary both systematically and randomly across individuals. Market wages are derived from a standard wage equation adjusted to the special circumstances of older workers. The two equations are estimated jointly by maximum likelihood, which takes into account the potential selectivity bias inherent in the model (low-wage individuals tend to retire and cease reporting their market wage). The model is reasonably successful in predicting retirement decisions, and casts serious doubt on previous claims that the social security system induces many workers to retire earlier than they otherwise would. The normal effects of aging (on both market and reservation wages) and the incentives set up by private pension plans are estimated to be major causes of retirement.

download in pdf format
   (827 K)

email paper

This paper is available as PDF (827 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0513

Published:

Users who downloaded this paper also downloaded these:
Gustman and Steinmeier w1237 A Structural Retirement Model
Gustman and Steinmeier w8229 Retirement and Wealth
Chan and Stevens w8780 How Does Job Loss Affect the Timing of Retirement?
Sickles and Taubman w1459 An Analysis of the Health and Retirement Status of the Elderly
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us