Social Security and the search behavior of advanced-age workers in Spain

Population aging threatens to severely destabilize the public finances of a majority of European countries. This unfavorable demographic prospect is usually reinforced by a widespread tendency to anticipate retirement. Reversing this tendency has been identified as a crucial factor to improve the financial viability of Continental-style public pensions. This has fostered an important research effort targeting a better understanding of retirement behavior. This paper contributes to that literature by studying the link between unemployment, retirement and public insurance mechanisms. We start by extending the standard search model to the non-stationary environment faced by workers of advanced ages (in the age range 50/65). We then proceed to check the empirical evidence on unemployment as the leading force behind an early withdrawal from the labor force. We use a very large data base of administrative records from the Spanish Social Security (made first available at the end of 2005). With the help of computational technics we study weather a carefully calibrated version of our model is capable of reproducing the basic empirical stylized facts. This is a first step in an structural econometric experiment combining our extended model (as the data generating process) and the newly released Spanish Social Security data.