Mandatory Retirement’s Effect on Mutual Agreement Severance Pay : Evidence from a Swedish Reform

University essay from Uppsala universitet/Nationalekonomiska institutionen

Author: Henning Ottmer; [2020]

Keywords: ;

Abstract: With a novel approach, I study the utility of mandatory retirement clauses in labor contracts, by using severance payment deals to measure employers’ willingness to pay to get rid of olderworkers. I compile a data set covering 5,363 incidences of severance payments from a sampleof Swedish public employers. In a recent reform the mandatory retirement age was raisedfrom 67 to 68, creating a discontinuity in the age which EPL coverage ended for differentcohorts. In a model with age and year fixed effects, I find suggestive but statisticallyinsignificant evidence of an increase in incidences and amounts of severance paymentsfollowing the reform. The estimated effects are concentrated to the ages closest to themandatory retirement age. Since the estimated total effect is small relative to the number ofemployees I indirectly observe, my results cannot offer support for the hypothesis thatmandatory retirement is a valuable tool for employers.

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