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Retirement choice in a frictionless labor market

Author

Listed:
  • Luz A. Flórez

    (Banco de la República de Colombia)

  • Catalina Granda

    (Universidad de Antioquia)

Abstract

This paper investigates optimal consumption and retirement choices in an environment without labor market frictions but in which agents face liquidity constraints. To this end, we characterize the optimal savings strategy and the threshold level of assets associated with the decision to retire or not, which in turn yield the optimal consumption and work choices. In line with the literature, we show that wealth plays a crucial role since it determines whether or not it is optimal to save and then to retire. However, our results differ from the conventional view as we find that, for those workers with low levels of assets, retirement is never optimal regardless of income uncertainty.

Suggested Citation

  • Luz A. Flórez & Catalina Granda, 2019. "Retirement choice in a frictionless labor market," Economics Bulletin, AccessEcon, vol. 39(1), pages 734-740.
    • Handle: RePEc:ebl:ecbull:eb-18-00055
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    References listed on IDEAS

    as
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    3. Toche, Patrick, 2005. "A tractable model of precautionary saving in continuous time," Economics Letters, Elsevier, vol. 87(2), pages 267-272, May.
    4. Jingjing Chai & Wolfram Horneff & Raimond Maurer & Olivia S. Mitchell, 2011. "Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts," Review of Finance, European Finance Association, vol. 15(4), pages 875-907.
    5. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications - Books, The World Bank Group, number 6730.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    retirement; frictionless labor market; consumption; savings;
    All these keywords.

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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