How Much Do State Economics and Other Characteristics Affect Retirement Behavior?

The labor force participation of men age 55-64 varies significantly among the various states of the Union. Little is known, however, about the reasons such variations exist. Using the Current Population Survey for the period 1977-2007, this paper demonstrates that the differences in the labor force participation of men age 55-64 are related to the labor market conditions, the nature of employment, and the employee characteristics in each state as well as a state pseudo replacement rate. These variables explain more than one-third of the total variation in labor force participation across states. Even controlling for state specific characteristics only cuts the explanatory power by half. To assess whether these relationships reflect different populations or unique aspects of the state economies, we turn to the Health and Retirement Study (HRS). We estimate equations for the probability of working and for the expected retirement for men in their late fifties and early sixties. We first estimate an equation predicting labor force participation using just the state-level variables taken from the CPS, then estimate an equation using both the CPS state-level variables and demographic and economic information for each individual taken from the HRS. The results show that while the state-level variables explain very little variation in an individual s probability of working or expected retirement age, most state-level variables have a statistically significant effect on such behavior both before and after the inclusion of the HRS information.

Labor Force Participation/Retirement Behavior

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