Expectations, loss aversion and retirement decisions in the context of the 2009 crisis in Europe
Abstract
Purpose
The purpose of this paper is to estimate a reduced form model of expectations-based reference-dependent preferences to explain job retention of older workers in Europe in the context of the 2009 economic crisis.
Design/methodology/approach
Using individual micro-economic longitudinal data from the Survey of Health, Ageing, and Retirement in Europe between 2006 and 2011, the authors derive a measure of “good, bad or no surprise” from workers’ anticipated evolution of their standard of living five years from 2006 (reference point) and from a comparison of their capacity to make ends meet between 2006 and 2011.
Findings
The authors find that the probability to remain on the labour market in 2011 is significantly higher for individuals who experienced a lower than expected standard of living. The effect of a “bad surprise” on job retention is larger than the effect of a “good surprise” once netted out from the effects of expectations at baseline, change in consumption utility, and the usual life-cycle determinants on job retention of older workers.
Originality/value
The authors interpret this result as an evidence of loss aversion in the case the reference point is based on individuals’ expectations. The authors also find that loss aversion is more common among men, risk-averse individuals and those with a higher perceived life expectancy.
Keywords
Acknowledgements
This research was supported by a research grant from the Pension Division, Caisse des Dépôts et Consignation, Paris, France. The authors would like to thank Vincent Delsart, Isabelle Bridenne, Laurent Soulat, Tim Pullman, the participants to the 1st International Conference on Globalization, Working Conditions and Health, Bordeaux, 25-27 June 2015, Stephen Bazen, and the anonymous referees for useful comments. All errors remain ours. The authors declare no conflict of interest. This paper uses data from SHARE Wave 5 release 1.0.0, as of March 31st 2015 (DOI: 10.6103/SHARE.w5.100) or SHARE Wave 4 release 1.1.1, as of March 28th 2013 (DOI: 10.6103/SHARE.w4.111) or SHARE Waves 1 and 2 release 2.6.0, as of November 29th 2013 (DOI: 10.6103/SHARE.w1.260 and 10.6103/SHARE.w2.260) or SHARELIFE release 1.0.0, as of November 24th 2010 (DOI: 10.6103/SHARE.w3.100). The SHARE data collection has been primarily funded by the European Commission through the 5th Framework Programme (project QLK6-CT-2001-00360 in the thematic programme Quality of Life), through the 6th Framework Programme (projects SHARE-I3, RII-CT-2006-062193, COMPARE, CIT5- CT-2005-028857, and SHARELIFE, CIT4-CT-2006-028812) and through the 7th Framework Programme (SHARE-PREP, No. 211909, SHARE-LEAP, No. 227822 and SHARE M4, No. 261982). Additional funding from the U.S. National Institute on Aging (U01 AG09740-13S2, P01 AG005842, P01 AG08291, P30 AG12815, R21 AG025169, Y1-AG-4553-01, IAG BSR06-11 and OGHA 04-064) and the German Ministry of Education and Research as well as from various national sources is gratefully acknowledged (see www.share-project.org for a full list of funding institutions).
Citation
Sirven, N. and Barnay, T. (2017), "Expectations, loss aversion and retirement decisions in the context of the 2009 crisis in Europe", International Journal of Manpower, Vol. 38 No. 1, pp. 25-44. https://doi.org/10.1108/IJM-02-2016-0041
Publisher
:Emerald Publishing Limited
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