Job Displacement and the Transition to Re-Employment and Early Retirement for Non-Employed Older Workers across Institutional Environments

Abstract

Despite the relatively higher frequency of job displacement among older workers in Europe, little is known on its effect on the work-retirement decision. Employing individual data from the European Community Household Panel, for a number of countries with differences in their institutional environments, the effect of job displacement for non-employed workers is identified separately for the transitions into re-employment and retirement. The findings suggest that in countries with relatively more generous unemployment insurance provisions for older unemployed, which offer a pathway to early retirement, older displaced workers exhibit lower re-employment and higher retirement rates compared to the non-displaced. These results are robust to dynamic selection due to unobserved heterogeneity and to the endogeneity of displacement.