Great Layoff, Great Retirement and Post-pandemic Inflation
Gepubliceerd: 07 mei 2024
The Covid-19 shock caused a dramatic spike in the number of retirees – a phenomenon dubbed the “Great Retirement” – and a prolonged con- traction in the labor force. This paper investigates the impact of the Great Retirement on the post-pandemic surge of inflation, via the labor market. First, retirement is generally countercyclical, and the peculiarity of the pan- demic shock was just in its size: the “Great Layoff” in March and April 2020 triggered the Great Retirement. Hence, a transitory labor demand shock generated a persistent labor supply shock. Second, counties more exposed to the Great Layoff exhibit a relatively higher increase in wages. Finally, an estimated model with endogenous labor market participation quantitatively assesses the overall contribution of the Great Retirement to inflation from 2020:Q1 up to 2023:Q2 to be roughly equal to 3.7 percentage (cumulative) points.
Keywords: Great Retirement; Labor Force; Wages; Inflation
JEL codes E30; E24; J21
Working paper no. 812
812 - Great Layoff, Great Retirement and Post-pandemic Inflation
Research highlights:
- The Covid-19 shock caused a dramatic spike in the number of retirees -- a phenomenon dubbed the ``Great Retirement" -- and a prolonged contraction in the labor force.
- This paper investigates the impact of the Great Retirement on the post-pandemic surge of inflation, via the labor market.
- Analyzing the relationship between layoffs and retirement behavior, we find that the ``Great Layoff'' in March and April 2020 triggered the Great Retirement. Hence, a transitory labor demand shock generated a persistent labor supply shock.
- In turn the Great Retirement contributed to post-pandemic inflation by increasing labor market tightness and putting upward pressure on wages.
- An estimated model with endogenous labor market participation quantitatively assesses the overall contribution of the Great Retirement to inflation from 2020:Q1 up to 2023:Q2 to be roughly equal to 3.7 percentage (cumulative) points.
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