The effects of the Great Recession on retirement were more modest than the press and initial research suggested, according to a new study.
The more elaborate and detailed analysis by Alan L. Gustman, Department of Economics at Dartmouth College; Thomas L. Steinmeier, Department of Economics at Texas Tech University; and Nahid Tabatabai, Department of Economics at Dartmouth College suggests that previous studies did not obscure large offsetting effects from different influences. “To be sure, as we show those who lost their jobs due to the Great Recession paid a significant price. But there were fewer of them than were initially expected. In addition, housing prices are recovering, erasing a major source of decline in wealth,” the researchers write in their report.
The largest overall effects of the Great Recession on full-time work by members of two-earner households are observed for 2009 and 2010. In 2009, an additional 2.5% of all 55- to 59-year-old husbands were not working full-time as result of the Great Recession, amounting to a reduction of 3.2% in full-time work. In 2010, 2.8% of 55- to 59-year-old husbands were not working full-time as a result of the Great Recession, amounting to a 3.8% reduction in full-time work.
For wives, the reductions in full-time work due to the Great Recession were 1.7% and 2.2% of those who initially held a job, or reductions of full-time work of 2.3% and 3%, respectively. For those ages 60 to 64, the reductions were 1.2% of men and 0.9% of women.
Most of these reductions were the direct result of additional layoffs during the Great Recession, which not only cost affected workers their jobs, but reduced their future earnings prospects should they continue in full-time work. Declines in the value of wealth due to the Great Recession increased the likelihood of full-time work, but this was substantially offset by the effect of decreases in expected returns, which reduced the likelihood of full-time work.
Having been laid off in the last three years reduces full-time work by 30%. There also are lingering effects of layoff on the probability of working longer. Having been laid off three or more years in the past reduces full-time employment in the current year by about 12%. This reflects the reduced work incentives for full-time work arising from lower earnings due to the loss of job tenure with a layoff as well as the additional earnings penalty from a layoff.
The effect of a spouse having been laid off on own work is much smaller. The reason is having one spouse not working increases the value of leisure for the other. In contrast, when one member of the household loses their job, the value of consumption increases relative to leisure. For recent layoffs, these effects are roughly offsetting, the researchers say. If a spouse was laid off more than three years ago, current full-time work effort is increased by around 2 to 3 percentage points.
“On the whole, most of those nearing retirement at the outset of the Great Recession seem to have dodged a bullet,” the researchers conclude.
The report “ A Structural Analysis of the Effects of the Great Recession on Retirement and Working Longer by Members of Two-Earner Households” is available for purchase or a free download at http://www.nber.org/papers/w22984.
« Smart Beta Explains Institutional Asset Manager Outperformance