DP7822 Career Length: Effects of Curvature of Earnings Profiles, Earnings Shocks, and Social Security

Author(s): Lars Ljungqvist, Thomas J Sargent
Publication Date: May 2010
Keyword(s): career length, earnings profile, earnings shocks, indivisible labor, labor supply elasticity, social security, taxes
JEL(s): E24, J22, J26
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7822

The high labor supply elasticity in an indivisible-labor model with employment lotteries emerges also without lotteries when individuals must instead choose career lengths. The more elastic are earnings to accumulated working time, the longer is a worker's career. Negative (positive) unanticipated earnings shocks reduce (increase) the career length of a worker holding positive assets at the time of the shock, while the effects are the opposite for a worker with negative assets. Government provided social security can attenuate responses of career length to earnings profile slope and earnings shocks by inducing a worker to retire at an official retirement age.