A computational model of labor market participation with health shocks and bounded rationality

Authored by Paolo Pellizzari, Alessandro Moro

Date Published: 2018

DOI: 10.1007/s10115-017-1096-3

Sponsors: No sponsors listed

Platforms: NetLogo

Model Documentation: Other Narrative Mathematical description

Model Code URLs: http://virgo.unive.it/paolop/papers/health_model6.nlogo

Abstract

This paper presents a computational agent-based model of labor market participation, in which a population of agents, affected by adverse health shocks that impact the costs associated with working efforts, decides whether to leave the labor market and retire. This decision is simply taken by looking at the working behaviors of the other agents, comparing the respective levels of well-being and imitating the more advantageous decision of others. The analysis reveals that such mechanism of social learning and imitation suffices to replicate the existing empirical evidence regarding the decline in labor market participation of older people. As a consequence, the paper demonstrates that it is not necessary to assume perfect and unrealistic rationality at the individual level to reproduce a rational behavior in the aggregate.

Tags

Agent-based modeling Bounded rationality Decision-Making Insurance Labor market participation Health shocks Social-security Retirement behavior