Old before their time: the role of employers in retirement decisions
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Old before their time: the role of employers in retirement decisions Piera Bello1,2 · Vincenzo Galasso3,4,5,6,7
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Do elderly workers retire early voluntarily, or are they induced to retire by their employers? We consider an exogenous shock due to a trade agreement between Switzerland and the EU—the mutual recognition agreement (MRA), which improved access to the EU market for Swiss firms. A vast literature suggests that these trade liberalization episodes lead firms to relocate and to innovate in order to increase productivity. This may lead to lower demand of skill obsolescent elderly workers and to higher demand of skilled workers. We use a difference in differences approach on Swiss Labor Force Survey data to compare early retirement behavior in treated MRA and control (non-MRA) industries in three periods (pre-liberalization, announcement, and implementation). We find an increase in early retirement in the MRA sector during the announcement period, which is stronger for larger firms, for exporting firms and for firms with a large age wage gap. We also find an increase in the share of graduates in all age groups. Wages are largely unaffected. Keywords Early retirement · Firms restructuring · Labor demand of elderly workers JEL Classification J14 · J23 · J26 · H55
* Vincenzo Galasso [email protected] 1
Institute of Economics, Università della Svizzera italiana, Lugano, Switzerland
2
Present Address: Department of Economics, University College London, London, UK
3
Department of Social and Political Sciences, Università Bocconi, Milan, Italy
4
Baffi-CAREFIN, Milan, Italy
5
IGIER, Milan, Italy
6
CEPR, London, UK
7
CES-ifo, Munich, Germany
13
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P. Bello, V. Galasso
1 Introduction The existing literature on early retirement focuses mostly on the workers’ incentives to retire (Gruber and Wise 2008; Costa 1998; Blöndal and Scarpetta 1999; Henriques 2017; Friedberg and Webb 2005; Mastrobuoni 2009; Staubli and Zweimüller 2013; Currie and Madrian 1999). Yet, survey evidence suggests that workers’ early retirement may not represent their voluntary decision, but rather their employers’ choice (Dorn and Sousa-Poza 2010; Marmot et al. 2002). The seminal paper by Lazear (1979) provides the theoretical background for understanding which incentives firms may have to terminate the job match with their elderly workers in normal times. If firms need to restructure in order to become more competitive in new or existing markets, additional incentives to accommodate their elderly workers out of the labor market may arise. In countries featuring strict employment protection legislations, high firing costs or steep seniority wages, early retirement may thus represent an affordable solution for the firm. The empirical evidence of the effect of labor demand on early retirement is scant.1 Yet, there are important reasons to investigate this channel. First, the initial adoption of generous early retirement p
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