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Adverse Selection and Incentives in an Early Retirement Program

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Author Info

  • Whelan, Kenneth T.

    ()
    (Cornell University)

  • Ehrenberg, Ronald G.

    ()
    (Cornell University)

  • Hallock, Kevin F.

    ()
    (Cornell University)

  • Seeber, Ronald L.

    ()
    (Cornell University)

Abstract

We evaluate potential determinants of enrollment in an early retirement incentive program for non-tenure-track employees at a large university. Using administrative records on the eligible population of employees not covered by collective bargaining agreements, historical employee count and layoff data by budget units, and public information on unit budgets, we find dips in per-employee finances in a budget unit during the application year and higher recent per employee layoffs were associated with increased probabilities of eligible employee program enrollment. Our results also suggest that, on average, employees whose salaries are lower than we would predict given their personal characteristics and job titles were more likely to enroll in the early retirement program. To the extent that employees' compensation reflect their productivity, as it should under a pay system in which annual salary increases are based on merit, this finding suggests that adverse selection was not a problem with the program. That is, we find no evidence that on average the "most productive" employees took the incentive.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6055.

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Length: 47 pages
Date of creation: Oct 2011
Date of revision:
Publication status: published in: Research in Labor Economics, 2012, Vol. 36, 159-190
Handle: RePEc:iza:izadps:dp6055

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Keywords: adverse selection; retirement incentive program; layoff threat; university;

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  1. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  2. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc.
  3. John Bound & Michael Schoenbaum & Todd R. Stinebrickner & Timothy Waidmann, 1998. "The Dynamic Effects of Health on the Labor Force Transitions of Older Workers," NBER Working Papers 6777, National Bureau of Economic Research, Inc.
  4. Pencavel, J., 2000. "The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94," Papers 99-019, United Nations World Employment Programme-.
  5. Debra S. Dwyer & Jianting Hu, . "Retirement Expectations and Realizations: The Role of Health Shocks and Economic Factors," Pension Research Council Working Papers 98-18, Wharton School Pension Research Council, University of Pennsylvania.
  6. Joshua Angrist & Victor Lavy, 2009. "The Effects of High Stakes High School Achievement Awards: Evidence from a Randomized Trial," American Economic Review, American Economic Association, vol. 99(4), pages 1384-1414, September.
  7. Steven G. Allen & Robert L. Clark & Linda S. Ghent, 2003. "Phasing Into Retirement," NBER Working Papers 9779, National Bureau of Economic Research, Inc.
  8. Steven G. Allen & Robert L. Clark & Linda S. Ghent, 2004. "Phasing into retirement," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(1), pages 112-127, October.
  9. Orley Ashenfelter & David Card, 2002. "Did the Elimination of Mandatory Retirement Affect Faculty Retirement?," American Economic Review, American Economic Association, vol. 92(4), pages 957-980, September.
  10. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
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