Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80231
Authors: 
Kalemli-Ozcan, Sebnem
Weil, David N.
Year of Publication: 
2001
Series/Report no.: 
Working Paper, Brown University, Department of Economics 2001-47
Abstract: 
We examine the role of declining mortality in explaining the rise of retirement over the course of the 20th century. We construct a model in which individuals make labor/leisure choices over their lifetimes subject to uncertainty about their date of death. In an environment in which mortality is high, an individual who saved up for retirement would face a high risk of dying before he could enjoy his planned leisure. In this case, the optimal plan is for people to work until they die. As mortality falls, however, it becomes optimal to plan, and save for, retirement. We simulate our model using actual changes in the US life table over the last century, and show that this “uncertainty effect” of declining mortality would have more than outweighed the “horizon effect” by which rising life expectancy would have led to later retirement. A calibration exercise, allowing for heterogeneity in tastes and other non-mortality factors influencing retirement, shows that falling mortality plausibly had a quantitatively significant effect on retirement.
JEL: 
E21
I12
J11
J26
Document Type: 
Working Paper

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