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Technical Progress and Early Retirement

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  • Avner Ahituv
  • Joeph Zeira

Abstract

This Paper claims that technical progress induces early retirement of older workers. It supports this claim both theoretically and empirically. We present a model where part of human capital is technology-specific, so that technical progress erodes some existing human capital. This affects mostly older workers, who do not learn the new technology, since their career horizon is short. As a result their participation in the labour force declines. We find strong support to this erosion effect in US data, which shows that labour supply of older workers is negatively related to technical progress across sectors. Unlike the cross-section effect, the model is ambiguous about the aggregate effect of technical progress on labour participation of older workers. While in sectors with many innovations it falls due to erosion of human capital, in other sectors it increases due to higher wages. To examine which effect dominates, we run a time series test and find that the effect of average technical progress on aggregate labour force participation by the old is negative. Namely, the erosion effect dominates.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Avner Ahituv & Joeph Zeira, 2008. "Technical Progress and Early Retirement," Working Papers 0801, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:0801
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    More about this item

    Keywords

    Early Retirement; Technical Change; Human Capital; Labor Force Participation;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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