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MANDATORY RETIREMENT AS A CLAUSE IN AN EMPLOYMENT INSURANCE CONTRACT
Author(s) -
LAPP JOHN S.
Publication year - 1985
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1985.tb01753.x
Subject(s) - economics , labour economics , wage , productivity , human capital , mandatory retirement , capital (architecture) , employment contract , pareto principle , market economy , history , operations management , computer science , macroeconomics , embedded system , rework , archaeology
This paper postulates the existence of an “employment insurance contract” in which firms insure the employment of workers, at a predetermined wage, against potential, age related declines in productivity. To limit its liability the firm establishes an age limit to its promise ––– the mandatory retirement age. It is demonstrated that Pareto‐efficient contracts exist which involve mandatory retirement at a specific age. The existence of these contracts, including mandatory retirement, increases workers' life‐time utility and encourages the accumulation of human capital. Empirical results are consistent with the predictions of the model.