Seniority Wages and the Role of Firms in Retirement

Frimmel, Wolfgang; Horvath, Thomas; Schnalzenberger, Mario and Winter-Ebmer, RudolfORCID: (2018) Seniority Wages and the Role of Firms in Retirement. Journal of Public Economics, 164, pp. 19-32. DOI: 10.1016/j.jpubeco.2018.04.013

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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 considerations about wage costs and replacement costs, 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 accrual rates or health status, the steepness of the wage profile will have different incentives for workers as compared to firms to maintain the employment relationship. 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 have on average a lower job exit age and a higher incidence of golden handshakes. (author's abstract)

Item Type: Article in Academic Journal
Keywords: Retirement, Seniority wages, Firm incentives
Classification Codes (e.g. JEL): JEL J14, J26, J31, H55
Research Units: Former Research Units (until 2020) > Labor Market and Social Policy
Date Deposited: 21 Jun 2018 12:06
Last Modified: 20 Feb 2019 13:27
DOI: 10.1016/j.jpubeco.2018.04.013
ISSN: 0047-2727

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