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Career Length: Effects of Curvature of Earnings Profiles, Earnings Shocks, and Social Security

By Lars Ljungqvist and Thomas J Sargent

Abstract

The high labor supply elasticity in an indivisible-labor model with employment lotteries emerges also without lotteries when individuals must instead choose career lengths. The more elastic are earnings to accumulated working time, the longer is a worker's career. Negative (positive) unanticipated earnings shocks reduce (increase) the career length of a worker holding positive assets at the time of the shock, while the effects are the opposite for a worker with negative assets. Government provided social security can attenuate responses of career length to earnings profile slope and earnings shocks by inducing a worker to retire at an official retirement age.career length; earnings profile; earnings shocks; indivisible labor; labor supply elasticity; social security; taxes

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