Optimal timing for retirement and bridge-job

Jongwook Won, Purdue University

Abstract

The thesis consider two models of retirement timing. The first, denoted the "traditional" model, considers only a career-job followed by a retirement period. In this model, intragenerational transfers associated with the Social Security system act to encourage early retirement for high-income workers and discourage early retirement for low-income of workers. The Social Security system also alters the choice of pension plan. Namely, a defined contribution plan is preferred by low-income workers but not high income workers. The second retirement model introduces the possibility of a bridge-job, which is a temporary job that is taken after the end of a "career" job but before retirement. The factors affecting decisions to take bridge-jobs are analyzed in this extended model. To do so, we utilize the concept of critical level of disutility from the career-job that varies across time. Factors affecting the departure from the career-job are expressed in terms of a critical level of disutility b*. The model shows that the higher the career-job wage, the lower the chance of taking the bridge-job. It is also shown that the private pension contribution rate is negatively related with probability of taking a bridge-job. Empirical tests of the second model indicate that pension contributions and wage at the career-job are negatively related to the probability of taking bridge-job as expected. It also found that as the level of specific-training in the career-job goes up, workers are less likely to take bridge-job. This findings also predicted by the model. The empirical results are obtained using two different data set, the 1973 Longitudinal Retirement History Survey (LRHS) and the 1982 New Beneficiary Survey (NBS). Comparison of these two data sets also illustrates that the proportion of bridge-job takers has declined from 35% in 1973 to 19% in 1982. We show that continuous improvement in pension coverage since late 1940s and a dramatic increase in Social Security benefits during the 1970s have influenced this decline in the proportion of bridge-job takers. The improvement in coverage of private pension and increase in Social Security benefits act to increase the critical level of disutility b*, so that workers in 1982 are less likely to take bridge-job.

Degree

Ph.D.

Advisors

Hu, Purdue University.

Subject Area

Labor economics

COinS