econ151a_winter2010_lecture7_topost

econ151a_winter2010_lecture7_topost - Midterm: Thursday,...

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Unformatted text preview: Midterm: Thursday, Feb 4: will cover material through lecture on 1/28 Format will be: 40% multiple choice, 60% short answer/problems (like homework) Retirement and the Life-Cycle model Wages for most individuals do tend to fall (moderately) as individuals reach ages 60+ BUT, labor supply often drops dramatically WHY? Need to consider total compensation including pensions Pensions (public & private) and Retirement Social Security: promise of fixed dollar amount, starting at age 67, until death (example of a defined benefit pension) Can still work, with some limits before age 70 Should this encourage retirement? ONLY under certain assumptions Does EXISTENCE of public pension (SS) encourage retirement? If contributions to SS exactly equal pension paid out (actuarily fair), this program simply transfers income from early in life to later NO effect on LIFETIME INCOME No effect on wage/annual compensation once minimum work requirements are met BUT: For some Social Security may return more than they have paid in OR, may not perceive contributions as reduced income, and so behave as if this increases lifetime income (take more leisure) OR, if individuals are liquidity constrained, and cant borrow, then lifecycle model isnt right, and SS may encourage retirement What about private pensions? Effects on retirement depend ENTIRELY on detailed structure of pensions EX: current UC pension, professor with 25 years of service Retire now: can get $300,000 lumpsum Wait 5 years to retire: can get $600,000 Effective wage includes about $60,000 per year in additional pension accumulation In this case, effective wage may be extremely high, and so individuals are encouraged to work for another 5 years (leisure over the next 5 years is very expensive!) New style pensions Defined Contribution typically do not have these non-linear accruals, and so less likely to delay retirement Firms Demand for Labor...
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This note was uploaded on 02/14/2011 for the course ECON 151A taught by Professor Miller during the Spring '06 term at UC Davis.

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econ151a_winter2010_lecture7_topost - Midterm: Thursday,...

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