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Modeling the retirement process
for policy evaluation and research
The economics literature has generally conceived of the retirement process as a one-way flow from an "in the labor force" status to a "not in the labor force" status. However, evidence from recent studies suggests that the retirement transition is much more complex, involving both major flows from full-time work to full retirement, either directly or indirectly through partial retirement, and much smaller flows in the opposite direction. Information about these flows provides a richer description of the retirement process. It may also help in establishing values for parameters which are important to the retirement decision and, thereby, in understanding the nature of that decision.
This article presents an analytical framework for investigating transitions of white men among full-time work, partial retirement, and full retirement. Of special importance are flows to partial retirement, which usually are associated with a reduction in wage rates and frequently entail a change in employers as well. Various descriptive statistics related to the retirement process, including probabilities of older workers being in particular labor force states at given ages, transition rates among the various states, and continuation rates in the states, also are examined. A final section discusses implications of the descriptive statistics for the estimation of retirement models.
This excerpt is from an article published in the July 1984 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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