Great Layoff, Great Retirement and Post-pandemic Inflation

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