Private wealth and job exit at older age: A random effects model

Private wealth holdings are likely to become an increasingly important determinant in the job exit decision of elderly workers. Net wealth may correlate with worker’s characteristics that also determine the exit out of a job. It is therefore important to include a rich set of observed characteristics in an empirical model for retirement in order to measure the (marginal) e ect of wealth on the job exit rate. But even with a rich set of regressors the question remains whether there are time-invariant unobservable worker’s characteristics that a ect both net wealth and the job exit rate. We specify a simultaneous equations model for job exit transitions with multiple destinations, net wealth, and the initial labour marketstate. The job exit rates and the net wealth equation contain random e ects. We allow for correlation between the random e ects of job exit and net wealth, and the initial labour market state. As instruments for wealth, we use survey information that measures `shocks’, like shocks to the household’s nancial situation duringthe previous year. Results show an upward bias in the e ect of net liquid wealth on retirement, but a small bias and a positive causal e ect if net total wealth (including housing equity and mortgage debt) is used. Both measures of wealth show a signficant positive effect on retirement. For an average individual with age 58an increase in net liquid wealth by 64,000 Euro, or in net total wealth by 110,000 Euro, raises the exit rate into retirement by 1 percentage point.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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