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Adverse Selection and Incentives in an Early Retirement Program

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  • Kenneth T. Whelan
  • Ronald G. Ehrenberg
  • Kevin F. Hallock
  • Ronald L. Seeber

Abstract

We evaluate potential determinants of enrollment in an early retirement incentive program for non-tenure-track employees of a large university. Using administrative record 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 finance in a budget unit during the application year and higher recent per employee layoffs were associated with increased probabiliites of eligible employee program enrollment. Our results also suggest, on average, that 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 reflects their productivity, as it should under a pay system in which annual salary increases are based on merit, this finidng 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.

Suggested Citation

  • Kenneth T. Whelan & Ronald G. Ehrenberg & Kevin F. Hallock & Ronald L. Seeber, 2011. "Adverse Selection and Incentives in an Early Retirement Program," NBER Working Papers 17538, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17538 Note: ED LS
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    References listed on IDEAS

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    1. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, pages 207-236.
    2. John Pencavel, 2001. "The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 58-84.
    3. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, pages 207-236.
    4. Bound, John & Schoenbaum, Michael & Stinebrickner, Todd R. & Waidmann, Timothy, 1999. "The dynamic effects of health on the labor force transitions of older workers," Labour Economics, Elsevier, vol. 6(2), pages 179-202, June.
    5. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    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. Debra S. Dwyer & Jianting Hu, "undated". "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.
    9. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
    10. 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.
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    More about this item

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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