Social Security Benefits and Employer Behavior: Evaluating Social Security Early Retirement Benefits as a Form of Unemployment Insurance

Robert Hutchens

International Economic Review, 1999, vol. 40, issue 3, pages 659-78

Abstract: Employers often shed older workers by encouraging them to "take" early retirement. An implicit contract model suggests that this behavior will be influenced by the social security early retirement program. When demand is weak and layoffs are necessary, social security benefits can act like a form of unemployment insurance, effectively subsidizing workforce reductions by lowering the cost to the firm of shedding older workers. Since social security benefits are not subject to experience rating, the result is an inefficiently high level of early retirements. This paper concludes with a discussion of policies for restoring early retirements to efficient levels. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1999
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