Technical Progress, Retraining Cost and Early Retirement

Technological progress affects early retirement in two opposing ways. On the one hand, it increases real wages and thus produces an incentive to postpone retirement. On the other hand, it erodes workers' skills, making early retirement more likely. Using the Health and Retirement Study surveys, we re-examine the effect of technical progress on early retirement, finding that when the technical change is small the erosion effect dominates, but when it is large the wage effect dominates. Our results imply that retraining cost is a strongly concave function with respect to technical progress.