Job Displacement, Retirement and the Roles of Government Programs among Older American Workers

The world has been going through one of worst economic recessions in history with severe job market downturns. In October 2009, the U.S. civilian unemployment rate reached a historical 10% and nearly 50% of the unemployed exhausted their 26-week regular Unemployment Insurance (UI) benefits and consequently, UI has been extended to 99 weeks. This dissertation examines the empirical facts of job displacement among the older American workers during the recent economic crisis, and studies their subsequent labor market and retirement decisions, with focus on the roles of government programs including UI and Social Security Old-Age Benefits (OA).;Job displacement is empirically shown to have both short term and long term negative effects on workers' future employment. While young and prime-aged workers usually increase labor supply to compensate for the drops in assets and incomes, it is ambiguous how older workers would response and whether premature retirement would follow. For workers who are approaching their retirement age when OA becomes available, both OA and UI could be claimed for that purpose. The extent to which they rely on these two programs is affected by factors including age, wealth, income profiles and the institutional details of UI and OA.;Using data from the Health and Retirement Study (HRS), I estimate a dynamic life-cycle utility maximization model with separate decisions on consumption/savings, labor market status and OA take-ups. With the structural model, I am able to isolate the effects of changes in UI coverage from changes in other relevant aspects including changes in the Normal Retirement Age (NRA), and analyze such effects in a deteriorating labor market. I conduct several experiments on UI generosities and evaluate the consequences on the mean individual as well as across the distributions of wealth and income. I find that in a severe labor market downturn, those who are on the lower end of wealth and income distributions are forced to claim OA early while the wealthier and high-income individuals typically postpone OA claiming to reduce early claiming penalties. However, with the extra help of a 99-week UI, some of the poor and low-income individuals can also afford to postpone OA claiming using UI as a stepping-stone. Specifically, among those who originally claim OA at an early 62 years old during a severe labor market downturn, 6.34% of the poorest individuals and 2.52% of the lowest-incomers postpone OA take-ups, resulting in slight increases in the average OA entitlement ages. However, the role of UI as a stepping stone is more prominent among those with high income profiles whose OA take-ups are postponed for almost a quarter year.