Responding to Regulation: The Effects of Changes in Mandatory Retirement Laws on Firm-Provided Incentives

Mandatory Retirement for Judges Improved the Performance of US State Supreme Courts

“…Instead, employers are required to evaluate the performance of the worker so that potentially high-productivity workers are retained. Economic theory provides little guidance on whether mandatory retirement dates should be allowed: with costless renegotiation, mandatory retirement would have no effect or, if it does have an effect, private parties would themselves choose the optimal rule (see Lazear, 1979;Frederiksen and Flaherty Manchester, 2019).…”

“…One of the closest papers is Ashenfelter and Card (2002), who find that banning a mandatory retirement age for university faculty significantly increased the share of older academics (see also Ho et al, 2021). Frederiksen and Flaherty Manchester (2019) look at the private sector and find that banning mandatory retirement reduced the share of long-term employment contracts and increased the prevalence of performance pay. Our setting is different in that we observe the implementation (rather than removal) of mandatory retirement.…”