chapter  6
50 Pages

Labour Supply Incentives for the Retired

WithPeter Warburton

This chapter analyses the third dimension of labour supply decisions, the years per life decision. In essence many older workers who, when unemployment was low, would have struggled on to state pensionable age despite infirmity, accept state benefits or early retirement inducements and leave the labour force early. The unemployment rate appears to exert quite a strong disincentive effect by comparison to the real benefits variable. The chapter considers some econometric estimates for labour participation in the UK using time-series data. It examines the retirement decision model, beginning with the concept of budget lines and extending the analysis to the dynamic budget line. The chapter explores the main results of the model by means of several simulations of the basic parameters of dynamic budget lines. The Family Expenditure Survey for 1980 gives a detailed decomposition of sources of incomes for sampled households. Retired households, which accounted for 22% of the total, fall into some main groups.