Nonconvexities, Retirement, and the Elasticity of Labor Supply

June 2013
With Johanna Wallenius; American Economic Review, Vol. 103, No. 4

We consider two life cycle models of labor supply that use nonconvexities to generate retirement. In each case we derive a link between hours worked prior to retirement, the intertemporal elasticity of substitution for labor (IES), and the size of the nonconvexities. This link is robust to allowing for credit constraints and human capital accumulation by younger workers and suggests values for the IES that are .75 or higher.