Early Retirement Windows

An early retirement window is an offer, by an employer, of a special incentive to retire at a particular time, beyond that provided by the firm's pension plan. While such windows have attracted increasing attention in the academic literature and the business press, most of our current knowledge about them is based on case studies or compensation consultants' surveys of their clients. The Health and Retirement Study provides an opportunity to analyze the incidence and consequences of such offers among a representative sample of workers who are in the age range (51-61 in 1992) where such windows may be important. HRS data suggest that window offers increased in the early 1990s. At their peak in the mid- 1990s, employers were making about 5 offers per 100 workers age 55-59. One third of the offers were accepted. The economic impact of window offers depends on the extent to which those who accept such offers would have left the employer soon anyway, and those who are induced to leave one employer go to work elsewhere. But multiplying the frequency of such offers by the acceptance rate suggests a substantial potential impact on the employment of workers in the HRS age range. Window offers are generally made to workers in "career" jobs. Such workers have aboveaverage education, tenure with employer, and earnings. The attachment between the employer and such workers is often strengthened by defined-benefit pension plans, which discourage leaving before the early-retirement age of the pension plan but often also provide sharp incentives to leave "on time". Workers who received window offers were closer to early retirement age (as defined by their pension plan), and were expecting to retire sooner than other workers. Thus, one might expect that those who receive window offers would have retired earlier than other workers, even without the special window incentive. On the other hand, those receiving window offers are better paid and in better health than the average worker, and these differences would encourage them to retire later. Workers who received window offers worked in jobs that had cognitive rather than physical demands, and there is some evidence that those most affected by technological change were more likely to receive an offer. Window offers with "up front" cash incentives offer, on average, six to eight months pay; those featuring increased pension benefits are more generous. Accepted offers tended to be those with more generous cash incentives and were more likely to include increased pension benefits, increased "service credit" (which indirectly raises pension benefits), and health insurance. Those who received window offers are less likely to be working at subsequent waves of the HRS; this effect is larger at the interview following the window offer (where those receiving an offer are 15 percentage points less likely to be employed), but declines fairly rapidly thereafter. Controlling for a wide variety of variables that are related to receiving a window offer and to the probability of being employed does not change the short-run impact significantly, but increases the rate at which the impact declines in later waves.

Estimating the Determinants of Employee Performance

Employers often wish to know whether the factors used in selecting employees do in fact allow them to choose the most qualified applicants. Because the performance of those not chosen is not observed, sample-selection bias is a likely problem in any attempt to "validate" employee-selection criteria. With minor modifications, the recently-developed techniques for dealing with sample-selection problems can be used in this context. Using data on applicants for first-line supervisory positions and ratings of on-the-job performance of those hired, ordinary least squares estimates of the determinants of performance are compared with maximum-likelihood estimates which correct for selection bias. The correction for selection bias produces some appreciable improvements in some variables' coefficients, though the corrected estimates remain "insignificant" at conventional levels. Differences in the firm's stated and actual hiring criteria are also noted.

The Role of Conventional Retirement Age in Retirement Decisions

Following Wave I HRS respondents for six waves (12 years) so that their actual retirement can be observed shows that the actual retirement hazard is substantially higher at (and around) the age that workers identified in Wave I as the "usual" retirement age for workers like them. This is true even when we control for actual age at each wave, and for baseline values of earnings, wealth, health, and marital status. We find relatively consistent evidence that those who report that there is no "usual" retirement age for workers like them tend to retire earlier than other workers – indeed, they are more likely to retire than workers who are more than three years short of their usual retirement age. The finding that workers are more likely to retire at a particular age if they regard that age as the usual retirement age for workers like them suggests that the direct measures of the usual age may be useful in more formal models of the retirement process. In a world where some workers understand the incentives they face and respond appropriately, but others are poorly informed and overwhelmed by the choices they face, the "usual" retirement age may be a starting point for modeling the behavior of the latter group of workers.

Post-Retirement Adjustments in Defined Benefit Pensions

Few private defined benefit pension plans commit to indexing benefits after a worker begins receiving them. Previous (now dated) research found that most plans did, nonetheless, make "voluntary" adjustments, which compensated for roughly 40 percent of the price increases experienced since retirement. In analyzing changes in pension benefits reported by HRS respondents between 1994 and 2008, I find annual increases that are about one third of the increase in the CPI. The increases are concentrated among respondents who report that their benefits are adjusted for inflation. They are larger for workers in public administration than in other industries; perhaps surprisingly, they are not larger in jobs covered by union contracts than those in the non-union sector. The HRS data also show that benefits paid out of defined contribution plans increased, again by roughly one third of the increase in consumer prices.

Standard-Rate Wage Setting, Labor Quality, and Unions

"Standard rate" wage policies, under which all workers in a particular job receive the same wage, are common for blue-collar workers, especially those covered by collective bargaining agreements and those who work for large employers.This paper analyzes the impact of standard-rate wage setting.There are two important conclusions. First,a standard-rate rule which leaves the employer free to set the rate can either increase or reduce the quality of labor hired. Given empirically likely distributions of alternative wages for workers, it pushes employers toward the middle of the quality distribution. Second, union standard-rate policies allow union?ununion differences in wages for workers of a given qualityto exist even when union employers are free to alter the quality of their workforces.

Early Retirement Windows

What happens to the employment status and earnings of workers who accept earlyretirement windows? Using data from the first six waves of HRS (1992-2002) I find that those who accepted window offers experience a sharp decline in employment - most do not go to work elsewhere. Those who do accept jobs elsewhere work fewer hours and receive significantly lower earnings per hour. Transitions to self-employment are more common among window acceptors than other workers.

Assistance to the Poor in a Federal System

This paper explores the roles of different levels of government in assisting the poor. Using a model with utility interdependence, the paper presents some theoretical results on how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support. After surveying the relevant empirical work and the experience under the English Poor Laws, the paper argues for a basic role for central government in this function.