Abstract
A model with leisure production and endogenous retirement is used to explain declining labor force participation rates of elderly males. The model is calibrated to cross‐sectional data on labor force participation rates of U.S. males by age, their drop in consumption, and leisure good expenditure share in 2000. Running the calibrated model for the period 1850–2000, a prediction of the evolution of the cross‐section is obtained. The model accounts for more than 87% of the increase in retirement of men over 65. The increase in retirement is driven by rising wages and falling prices of leisure goods.
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