Let's Make a Deal - the Impact of Social Security Provisions and Firm Liabilities on Early Retirement
Literature on early retirement has generally ignored firms' role in the labour market withdrawals. Yet, as it is shown in this paper, employee incentives alone cannot explain the increase in unemployment at the end of the career. Instead, we construct an implicit contracts model where we account for both the firm and the worker incentives. Displacements occur only when joint utility of the two parties are greater for displacement than for continued employment. We use a firm-worker -panel to test two implications of our model. First, we find that firms target their layoffs on employees who lose least when displaced. This targeting is more frequent in firms in financial distress and during a recession. Second, we find that a change in a disability risk affects also the displacement probability. This is due to differences in experience rating for the disability and unemployment pensions.
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- Robin L. Lumsdaine & Olivia S. Mitchell, "undated". "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
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- Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-846, December. Full references (including those not matched with items on IDEAS)
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