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Abstract:
I examine the impact of divorce and widowhood after age 50 on the separated individual's economic choices. I augment a standard life cycle model of household labor supply to reflect the potential loss of one or both members. The model predicts a separation impacts an individual's economic decisions through (1) asset loss, (2) spousal income loss, and (3) changes in the household's preference for leisure.
I test the relative influence of these factors on an individual's labor supply and retirement decisions using longitudinal data from the Health and Retirement Study. I find that female labor force participation increases by up to 15.7% in the six to eight years following divorce, compared with an insignificant decline in work amongst widows. I am able to attribute most of the work and delayed retirement response to losses in asset levels. This suggests that divorcee and widowhood poverty are driven by short-run financial concerns with important implications for life insurance and divorce settlements.