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Why Was there Mandatory Retirement? or the Impossibility of Efficient Bonding Contracts

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  • 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.

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File URL: http://www.nber.org/papers/w2199.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2199.

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Date of creation: Mar 1987
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Publication status: published as Journal of Public Economics, 1989
Handle: RePEc:nbr:nberwo:2199

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  1. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
  2. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
  3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  4. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  5. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," NBER Working Papers 0278, National Bureau of Economic Research, Inc.
  6. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
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