Wages and the Value of Nonemployment
Simon Jäger, Massachusetts Institute of Technology and National Bureau of Economic Research and Benjamin Schoefer, University of California, Berkeley
How does the increased presence of older workers affect firms’ hiring, retention, and wage policies? Does early retirement, or working longer, mean fewer entry-level jobs for the young? Does it slow down the promotion process of middle-aged workers? How does it change their colleagues’ and employers’ productivity?
We exploit a unique combination of clean policy experiments in retirement policies and unemployment/disability insurance with large-scale administrative data encompassing all workers and firms in Austria. First, we establish that these policies had a uniquely clean and large effect on older workers’ incentives to retire early, while staying unchanged in control regions. This investigation goes far beyond a mere “first stage” for our spillover analysis: we adapt a transparent econometric technique to study and establish a new set of facts on the anatomy of policy-induced early retirement and separations, carefully characterizing and dissecting who the marginal worker is that responds and which employment relationships are resolved by early retirement.
Second, having identified a compelling and large experimental variation in which older workers separate in response to the reform, we use matched employer-employee data to identify and understand the spillover and distributional effects of these early retirements (and, in the control region, longer work lives) on not directly affected younger colleagues as well as firm’s overall personnel policy (hiring, firing, retention and wage policies).
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