Private wealth and job exit at older age: a random effects model

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Private wealth holdings are likely to become an increasingly important determinant in the job exit decision of elderly workers. Net wealth may correlate with worker’s characteristics that also determine the exit out of a job. It is therefore important to include a rich set of observed characteristics in an empirical model for retirement in order to measure the (marginal) effect of wealth on the job exit rate. But even with a rich set of regressors, the question remains whether there are time-invariant unobservable worker’s characteristics that affect both net wealth and the job exit rate. We specify a simultaneous equations model for job exit transitions with multiple destinations, net wealth, and the initial labour market state. The job exit rates and the net wealth equation contain random effects. We allow for correlation between the random effects of job exit and net wealth, and the initial labour market state. As instruments for wealth, we use survey information that measures ‘shocks’, like shocks to the household’s financial situation during the previous year. Results show an upward bias in the effect of net liquid wealth on retirement, but a small bias and a positive causal effect if net total wealth (including housing equity and mortgage debt) is used. Both measures of wealth show a significant positive effect on retirement. For an average individual with age 58, an increase in net liquid wealth by 64,000 euros, or in net total wealth by 110,000 euros, raises the exit rate into retirement by 1 % point.
Original languageEnglish
Pages (from-to)763-807
Number of pages44
JournalEmpirical Economics
Volume51
Issue number2
DOIs
Publication statusPublished - 2016

Fingerprint

Dive into the research topics of 'Private wealth and job exit at older age: a random effects model'. Together they form a unique fingerprint.

Cite this