Working Paper: NBER ID: w2199
Authors: Kevin Lang
Abstract: Lazear has argued that hours constraints, in general, and mandatory retirement, in particular, form part of an efficient labor market contract designed to increase output by inhibiting worker shirking. Since the contract is efficient, legislative interference is welfare reducing. However, in any case where bonding is costly, the hours constraints will not be chosen optimally. Although it is theoretically possible that bonding is costless, in this case the earnings profile is indeterminate and we should never observe monitoring aimed at reducing shirking. It therefore appears that bonding should be modelled as costly. If so, the role of policy depends on the source of bonding costs, the set of feasible contracts and the policy options which are available to government.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mandatory retirement and hours constraints (J26) | prevent worker shirking (J29) |
| costly bonding (H74) | optimal hours constraints not chosen (C61) |
| costly bonding (H74) | inefficiencies in labor contracts (J41) |
| costly bonding (H74) | suboptimal hour constraints (C41) |
| inefficiencies caused by costly bonding (H74) | mandatory retirement occurs too early (J26) |
| different discount rates from workers (J79) | costly bonding (H74) |
| costly bonding (H74) | impairs efficiency of contracts (D86) |