Let's Make a Deal - the Impact of Social Security Provisions and Firm Liabilities on Early Retirement

Tuulia Hakola and Roope Uusitalo

No 260, Discussion Papers from VATT Institute for Economic Research

Abstract: 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.

Keywords: Early exit, implicit contracts, experience rating, unemployment of the aged, Labour market, Työmarkkinat, Social security, Sosiaaliturva, Labor market and policies promoting economic growth, Työmarkkinat ja kasvua tukeva politiikka, D210 - Firm Behavior, H550 - Social Security and Public Pensions, J140 - Economics of the Elderly; Economics of the Handicapped, J260 - Retirement; Retirement Policies, (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.doria.fi/handle/10024/148161

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fer:dpaper:260

Ordering information: This working paper can be ordered from
tietopalvelu@vatt.fi

Access Statistics for this paper

More papers in Discussion Papers from VATT Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Anita Niskanen (tietopalvelu@vatt.fi).