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Seniority Wages and the Role of Firms in Retirement

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  • Frimmel, Wolfgang

    () (University of Linz)

  • Horvath, Thomas

    () (WIFO - Austrian Institute of Economic Research)

  • Schnalzenberger, Mario

    () (University of Linz)

  • Winter-Ebmer, Rudolf

    () (University of Linz)

Abstract

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 the seniority wage model developed by Lazear (1979), 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 or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. 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 are associated with lower job exit age.

Suggested Citation

  • Frimmel, Wolfgang & Horvath, Thomas & Schnalzenberger, Mario & Winter-Ebmer, Rudolf, 2015. "Seniority Wages and the Role of Firms in Retirement," IZA Discussion Papers 9192, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9192
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    References listed on IDEAS

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    Cited by:

    1. Ichino, Andrea & Schwerdt, Guido & Winter-Ebmer, Rudolf & Zweimüller, Josef, 2017. "Too old to work, too young to retire?," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 14-29.
    2. Andrea Albanese & Bart Cockx & Yannick Thuy, 2015. "Working Time Reductions At The End Of The Career. Do They Prolong The Time Spent In Employment?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 15/916, Ghent University, Faculty of Economics and Business Administration.
    3. Frimmel, Wolfgang & Halla, Martin & Paetzold, Jörg, 2017. "The Intergenerational Causal Effect of Tax Evasion: Evidence from the Commuter Tax Allowance in Austria," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168244, Verein für Socialpolitik / German Economic Association.
    4. Kerndler, Martin, 2016. "Contracting frictions and inefficient layoffs of older workers," Annual Conference 2016 (Augsburg): Demographic Change 145711, Verein für Socialpolitik / German Economic Association.
    5. Bello, Piera & Galasso, Vincenzo, 2015. "Old before their time: The role of employers in retirement decisions," CEPR Discussion Papers 11007, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    retirement; seniority wages; firm incentives;

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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