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Retirement decision under uncertainty: the role of irreversibility

Author

Listed:
  • R. MAHIEU

    (Insee)

  • B. SÉDILLOT

    (Insee)

Abstract

The purpose of this paper is to analyze the effect of the irreversibility of the retirement decision on labour supply after 60. According to the theory, when the retirement decision is an absorbing state, people tend to remain longer on the labour market to be able to benefit from changes in preferences or economic environment favourable to participation. Simulations performed on a sample of individuals with heterogeneous careers illustrate this result. When pensions schemes are actuarially fair, the irreversibility of the retirement decision leads to higher participation rates in the first years when retirement is allowed. Moreover labour supply around 60 increases with uncertainty. Simulations show that the impact of an increase in uncertainty on participation rates highly depends on the pension schemes. Whereas the effect is sensitive with actuarially fair systems, it is almost insignificant in the French Institutional setting where individual choices are highly constrained by the rules.

Suggested Citation

  • R. Mahieu & B. Sã‰Dillot, 2001. "Retirement decision under uncertainty: the role of irreversibility," Documents de Travail de l'Insee - INSEE Working Papers g2001-06, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2001-06
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zqqrc/f1.pdf
    File Function: Document de travail de la DESE numéro G2001-06
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    More about this item

    Keywords

    Irreversibility; Retirement Decision; Pension Schemes;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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