Dynamic life cycle models of labor supply, consumption/saving, annuities, and job search behavior with empirical applications

This dissertation presents various stochastic dynamic programming models that endogenize the consumption/saving, labor/leisure, annuity and search decisions of individuals. Using numerical methods I am able to solve and simulate paths for the relevant variables to analyze behavior and perform policy experiments. First, using the Health and Retirement Survey I investigate the determinants of labor force status among older Americans, with an special emphasis on the study on those returning to work. I also investigate transitions in and out of employment and self-employment, and for subsamples of males, females, and married respondents. Second, I introduce a dynamic model of labor/leisure, consumption/saving and annuity decisions over the life cycle with capital uncertainty, and in the presence of bequest motives and Social Security. This provides new insights into the "annuity puzzle" and the effects of Social Security on labor supply and welfare. Finally, I extend the previous model to account for job search behavior over the Life Cycle. Individuals now also make job search decisions under capital, lifetime and wage uncertainty. Searching is costly in terms of leisure and in terms of monetary resources, but it is also productive having a positive effect on the wage individuals expect to face in the subsequent periods. I show that some features of the dynamic model can be reconciled with empirical data from the Health and Retirement Survey on search behavior among older workers. The empirical analysis of search behavior at the end of the life cycle represents one of the first efforts to characterize job search as an important issue to consider for older individuals.