This paper estimates a life cycle model of labour supply, retirement, and savings behaviour in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labour, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labour force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labour force by only three months.

Most panel data studies of intertemporal labor supply assume classical measurement error. Recent validation studies refute this assumption. In this study I address nonclassical measurement error explicitly. I use data on males from the Panel Study of Income Dynamics Validation Study to purge measurement error from the Panel Study of Income Dynamics. I find a large amount of predictable wage variation in the data, even after allowing for measurement error. However, there is almost no labor supply response to these predictable wage changes. Therefore, failure to control for nonclassical measurement error cannot explain the low estimated labor supply elasticities in other papers.

This paper provides an empirical analysis of the effects of employer-provided health insurance, Medicare, and Social Security on retirement behavior. Using data from the Health and Retirement Study, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that Medicare is important for understanding retirement behavior, and that uncertainty and saving are both important for understanding the labor supply responses to Medicare. Half the value placed by a typical worker on his employer-provided health insurance is the value of reduced medical expense risk. Raising the Medicare eligibility age from 65 to 67 leads individuals to work an additional 0.074 years over ages 60–69. In comparison, eliminating 2 years worth of Social Security benefits increases years of work by 0.076 years.

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low‐skill employment by 2%–4% and total restaurant employment by 1%–3%.

This article identifies the part‐time wage effect, using hours variation caused by the social security rules. We show that work hours and wages drop sharply at ages 62 and 65. We argue that the hours decline causes the wage decline, resulting in a 25% wage penalty for men who cut their work week from 40 to 20 hours. However, we find little evidence for such an effect among women. We also show that models that fail to account for the joint determination of hours and wages will understate the labor supply response to a tax change by about 26%.

The old age provisions of the Medicaid program were designed to insure retirees against medical expenses. We estimate a structural model of savings and medical spending and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees. Compensating variation calculations indicate that current retirees value Medicaid insurance at more than its actuarial cost, but that most would value an expansion of the current Medicaid program at less than its cost. These findings suggest that for current single retirees, the Medicaid program may be of the approximately right size.

Rich people, women, and healthy people live much longer than their poor, male, and sick counterparts. Two extremes, taken from our analysis of single people in the Assets and Health Dynamics of the Oldest Old (AHEAD) dataset, illustrate this point: an unhealthy 70-year-old male at the twentieth percentile of the permanent income distribution expects to live only 6 more years, that is, to age 76. In contrast, a healthy 70-year-old woman at the eightieth percentile of the permanent income distribution expects to live 16 more years, thus making it to age 86.] Such significant differences in life expectancy could, all else equal, lead to significant differ ences in saving behavior. A related observation is that people with high permanent incomes keep large amounts of assets until very late in life. Table 1, also based on the

This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using Assets and Health Dynamics of the Oldest Old data and the method of simulated moments. Out-of-pocket medical expenses rise quickly with age and permanent income. The risk of living long and requiring expensive medical care is a key driver of saving for many higher-income elderly. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest but also benefit the rich by insuring them against high medical expenses at the ends of their lives. (c) 2010 by The University of Chicago. All rights reserved.

Immediately following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock. (JEL D12, D14, D91, J38)

We estimate a model of savings for retired couples and singles who face longevity and medical expense risks and in which couples can leave bequests both when the first spouse dies and when the last spouse dies. We show that saving motives vary by marital status, permanent income, and age. We find that most households save more for medical expenses than for bequests but that richer households and couples, who hold most of the wealth, save more for bequests. As a result, bequest motives are a key determinant of aggregate retirement wealth.