|Title||The Effect of Wealth on Labor Force Participation of Older Men|
|Publication Type||Journal Article|
|Year of Publication||2008|
|Keywords||Labor Dynamics, labor force, Wealth|
This paper estimates the effect of wealth on the labor force participation (LFP) of older men. I use an Instrumental Variables (IV) estimation approach that corrects for measurement error in wealth and unobservable taste variation across individuals. Previous studies that do not control for these factors have found that wealth has very little effect on retirement. My IV results reveal a larger wealth effect than in most previous studies; a $20k increase in wealth reduces the probability of LFP by about 1 percentage point. The instruments are local housing price growth and unanticipated inheritances. I cannot reject the hypothesis that the effects of housing and non-housing wealth on LFP are equal, although the power of my test is low. Thus, my analysis suggests that older men are equally willing to "spend" an increase in housing and non-housing wealth on earlier retirement.