This study examines the substitutability between prime-age (ages 25-54) and marginal-retirement-age (ages 55-64) workers by investigating the impact of internal migration of prime-age workers across 320 U.S. Metropolitan Statistical Areas from 2002 to 2019.

To mitigate potential biases from reverse causation, this study utilizes a shift-share instrumental variable approach for identifying the inflow shocks. Furthermore, I use the local projection method, which helps reduce the effects of unobservable endogenous variables and traces the dynamic response of relative employment and earnings between prime- and marginal-retirement-age workers.

A 1% increase in prime-age worker inflows boosts the relative employment of prime- to marginal-retirement-age workers by 1.39%. The inflow shock reduces relative earnings by 0.18%, indicating the elasticity of substitution of 7.7.

Interpreted via an overlapping generations model, the inflow of prime-age workers, coupled with low substitutability enhances the welfare of workers nearing retirement. Therefore, I emphasize that policymakers should consider not just relocating people to high-inflow areas but also reducing worker substitutability to improve the welfare of the marginal-retirement-age population.

C26, E24, J21, R23

Western Economic Association International (July, 2023), PhD-EVS (September, 2023), Midwest Econometrics Group Conference (October, 2023), Korea-America Economic Association Job Market Conference (November, 2023), North American Meetings of the Regional Science Association International (November, 2023)