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Next Brown Bag

Monday, Nov 3
Melvin Stephens, Estimating Program Benefits

A Life-Cycle Analysis of Health, Family Structure, Wealth and Retirement

a PSC Research Project [ARCHIVE DISPLAY]

Investigators:   John Laitner, Christopher L. House, Daniel Silverman, Dmitriy L. Stolyarov

The purpose of the proposed work is to integrate and deepen existing theoretical and empirical work on the relationships among health, family structure, wealth, and retirement within a single retirement modeling framework. Such a framework would benefit the research and policy communities by providing a comprehensive understanding of the retirement process and a basis for evaluating attendant policy concerns.. The work would develop a dynamic, life-cycle, theoretical model that features the roles of health and female labor supply. It would then estimate the parameters of the model using recent data, including the Health and Retirement Study (HRS) and its linked Social Security earning records. The HRS makes available lifetime earnings and demographic information, together with retirement ages and retirement-period net worth, including pension flows, for a large panel of households. We would supplement it with pseudo-panel consumption data from the Consumer Expenditure Survey.



Health has its own life cycle, typically with serious declines in old age. Different existing specifications imply that health deterioration leads to rising, level, or declining household consumption. Our framework can nest all three specifications, and it offers the possibility of testing them. Recent attention has focused on apparent systematic drops in household consumption at retirement, and, again, our framework nests a number of prominent explanations. In this case, several may be valid – but the proposed analysis will help to establish their relative importance.



Female labor supply seems more elastic than its male counterpart, presumably because of substitution in and out of home production. Indeed, if the value of home production is large, a complete life-cycle model cannot overlook it. Unfortunately, it is nearly impossible to measure directly. Nevertheless, the framework that we propose will enable us indirectly to assess changes in home production, and in that way to analyze and estimate remaining parts of the model.



A life-cycle framework tends to correlate a household’s desire to retire with the magnitude of its current earnings relative to its lifetime resources. This makes earnings profiles important. Since in the HRS cohort, female earnings profiles often have different shapes than male profiles (with gaps for childbearing, for instance) differences among households in married women’s earnings can lead to differences in households’ retirement behavior – and this constitutes another interest of the proposed research.

Funding Period: 09/15/2007 to 07/31/2012

Country of Focus: USA

This PSC Archive record is displayed for historical reference.

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