Full Citation

Title: Estimation of a Life-Cycle Model with Human Capital, Labor Supply, and Retirement

Citation Type: Journal Article

Forthcoming?: Yes

ISBN:

ISSN: 0022-3808

DOI: 10.1086/726232

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Abstract: We estimate a life-cycle model of consumption, human capital investment, and labor supply and use it to analyze changes in Social Security rules. The most important aspect of our paper is human capital towards the end of the life cycle which responds to changes in the rules. Retirement arises endogenously as part of the labor supply decision. The model allows for both an endogenous wage process through human capital investment (which is typically assumed exogenous in the retirement literature), an endogenous retirement decision (which is typically assumed exogenous in the human capital literature), and accounts for the Social Security system. We estimate the model using indirect inference to match the life-cycle profiles of employment and measured wages from the SIPP data. The model replicates the main features of the data—in particular the large increase in measured wages and small increase in labor supply at the beginning of the life cycle as well as the small decrease in measured wages but large decrease in labor supply at the end of the life cycle. We use the model to estimate the effects of various changes to tax and Social Security policies and show that allowing for human capital accumulation is critical.

Url: https://www.journals.uchicago.edu/doi/abs/10.1086/726232?journalCode=jpe

User Submitted?: No

Authors: Taber, Christopher; Seshadri, Ananth; Fan, Xiaodong

Periodical (Full): Journal of Political Economy

Issue:

Volume:

Pages: 1-77

Data Collections: IPUMS CPS

Topics: Aging and Retirement, Labor Force and Occupational Structure

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