Fixed Costs, Retirement and the Elasticity of Labor Supply∗

We analyze the forces that can generate retirement in different versions of standard life cycle models of labor supply. While nonconvexities in production can generate retirement, we show that the size of nonconvexities needed increases sharply as the intertemporal elasticity of substitution for labor decreases. ∗We thank Eric French, Steve Davis, Yongsung Chang plus seminar and conference participants at the Federal Reserve Bank of Minneapolis, Canon Institute in Tokyo, Yonsei University, Sogang University, Korea University, Beijing University and the 2010 Nordic Macroeconomic Summer Symposium. Part of the research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government. Rogerson thanks the SSA for financial support. Wallenius thanks the Yrjo Jahnsson Foundation for financial support.