Technical Progress, Sorting, and Early Retirement

Abstract

Technological progress has been shown to affect early retirement via two opposite forces. On the one hand, it increases real wages and, therefore, creates incentives to delay retirement. On the other hand, it causes an erosion of workers' skills, which raises the probability of early retirement. We reexamine the effect of technological progress on early retirement by taking into account that, at the beginning of their working life, individuals sort into sectors according to their ability level. This gives us two main results: 1) for small (large) technical changes the wage (erosion) effect dominates, and 2) the more able individuals resist better the erosion effect.

Keywords: Technical Progress, Sorting, Retirement

JEL Classification: J24, J26, O33