Working Paper: CEPR ID: DP10729
Authors: Wolfgang Frimmel; Gerard Thomas Horvath; Mario Schnalzenberger; Rudolf Winterebmer
Abstract: In general, retirement is seen as a pure labor supply phenomenon, but firms can have strong incentives to send expensive older workers into retirement. Based on the seniority wage model developed by Lazear (1979), we discuss steep seniority wage profiles as incentives for firms to dismiss older workers before retirement. Conditional on individual retirement incentives, e.g., social security wealth or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. Using an instrumental variable approach to account for selection of workers in our firms and for reverse causality, we find that firms with higher labor costs for older workers are associated with lower job exit age.
Keywords: firm incentives; retirement; seniority wages
JEL Codes: H55; J14; J26; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| steeper seniority wage profiles (J31) | earlier job exit ages for older workers (J26) |
| higher labor costs for older workers (J32) | lower job exit ages (J26) |
| higher social security wealth at age 55 (H55) | reduced job exit age (J26) |
| steep wage gradients (J31) | increased likelihood of receiving golden handshakes for blue-collar workers (J65) |