Mandatory Retirement Policy Research Articles

Does the early retirement policy really benefit women?

China’s mandatory retirement policy requires female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier, providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequences of China’s gender-specific mandatory retirement policy using a calibrated overlapping generations model with heterogeneous agents and incomplete markets. We find that early mandatory retirement reduces welfare for women. One of the reasons for this result is that China’s public pension benefits are only partially indexed to economic growth, and therefore, women who retire earlier than men benefit less from economic growth. Our quantitative results suggest that equalizing the retirement age across genders will generate welfare gains for both men and women. Furthermore, we find low replacement rate and high men to women ratio diminish this welfare gain.

The costs and benefits of retirement policies at U.S. audit firms

The mandatory retirement age within U.S. Big 4 audit firms ranges from 55 to 62, which has attracted controversy and legal scrutiny. The potential costs of an earlier retirement age include the loss of established networks, experience, and expertise. However, studies in non-U.S. jurisdictions conclude that partners nearing retirement disengage from their work, which manifests in lower audit quality. Using intensive hand-collected data on the age of 3,148 U.S. audit partners, we provide the first evidence of the costs and benefits of mandatory retirement policies at U.S. audit firms. We find that audit quality does not vary, but that fees are significantly higher for U.S. partners approaching retirement. These findings suggest that U.S. mandatory retirement policies are forcing out experienced revenue earners that are producing audit quality equivalent to younger partners. Additional analysis reveal that partner retirements are mechanisms to promote and grow the client portfolios of younger and female audit partners, and therefore increase partner diversity. Our additional analysis of non-U.S. audit partners leading audits of U.S. listed companies shows that partners approaching retirement are associated with lower audit quality across certain measures. This suggests that the audit quality of older U.S. partners is superior to their non-U.S. counterparts.

The Costs and Benefits of Retirement Policies at U.S. Audit Firms

The mandatory retirement age within U.S. Big 4 audit firms ranges from 55 to 62, which has attracted controversy and legal scrutiny. The potential costs of an earlier retirement age include the loss of established networks, experience, and expertise. However, studies in non-U.S. jurisdictions conclude that partners nearing retirement disengage from their work, which manifests in lower audit quality. Using intensive hand-collected data on the age of 3,148 U.S. audit partners, we provide the first evidence of the costs and benefits of mandatory retirement policies at U.S. audit firms. We find that audit quality does not vary, but that fees are significantly higher for U.S. partners approaching retirement. These findings suggest that U.S. mandatory retirement policies are forcing out experienced revenue earners that are producing audit quality equivalent to younger partners. Additional analysis reveal that partner retirements are mechanisms to promote and grow the client portfolios of younger and female audit partners, and therefore increase partner diversity. Our additional analysis of non-U.S. audit partners leading audits of U.S. listed companies shows that partners approaching retirement are associated with lower audit quality across certain measures. This suggests that the audit quality of older U.S. partners is superior to their non-U.S. counterparts.

Mandatory Retirement for Judges Improved Performance on U.S. State Supreme Courts

Anecdotal evidence often points to aging as a cause for reduced work performance. This paper provides empirical evidence on this issue in a context where performance is measurable and there is variation in mandatory retirement policies: U.S. state supreme courts. We find that introducing mandatory retirement reduces the average age of working judges and improves court performance, as measured by output (number of published opinions) and legal impact (number of forward citations to those opinions). Consistent with aging effects as a contributing factor, we find that older judges do about the same amount of work as younger judges, but that work is lower-quality as measured by citations. However, the effect of mandatory retirement on performance is much larger than what would be expected from the change in the age distribution, suggesting that the presence of older judges reduces the performance of younger judges. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Flexible or mandatory retirement? Welfare implications of retirement policies for a population with heterogeneous health conditions

A flexible retirement policy has often been proposed as a solution to address the social dilemma of individuals in the population having different desired retirement ages. We analyze such a policy in an overlapping generations general equilibrium framework, where individuals differ in terms of their health condition at the standard retirement age, and therefore in their suitability for remaining in the labor force beyond the standard age. In our model, workers know about their future health condition when they are young, and adjust their savings and labor supply accordingly in order to maximize their lifetime utility. The applies to situations in which workers can fairly accurately predict their health status based upon personal, family, community and professional health status tendencies. We compare the flexible retirement policy to the mandatory retirement policy in the labor and capital markets, and the effects on savings and wages in the aggregate for both healthy and unhealthy, young and elderly cohorts. For economies with sufficiently high capital intensity of production and high levels health among the elderly, a flexible retirement policy can result in a welfare reduction compared to a mandatory retirement policy. Our study links the social desirability of the two retirement policies to the technological and population structure of the economy.

Does retirement affect alcohol expenditure? Evidence from urban Chinese older adults in 2002-2009

Exploiting China’s mandatory retirement policy, we used fuzzy regression discontinuity design to estimate the effect of retirement on household alcohol expenditure among urban Chinese older adults ages 50–70. Drawing on data from the Urban Household Survey of China Statistics Bureau for the period of 2002–2009, we found that having a retired male household head significantly reduced total household expenditure on alcohol by 32%. After breaking down by different types of alcohol, we found that the retirement effect was largely driven by expenditure on liquor. We explored two potential mechanisms that may explain the retirement effect. The first mechanism relates to decreased disposable income after retirement and the second mechanism involves reduced demand of social drinking after retirement. Our findings suggest that the urban Chinese older adults experience substantial change in such health behavior as drinking as they retire. This has important public policy implications as China is facing a severe challenge of rapid population aging.

Does retirement affect alcohol expenditure? Evidence from urban Chinese older adults in 2002-2009

Exploiting China’s mandatory retirement policy, we used fuzzy regression discontinuity design to estimate the effect of retirement on household alcohol expenditure among urban Chinese older adults ages 50–70. Drawing on data from the Urban Household Survey of China Statistics Bureau for the period of 2002–2009, we found that having a retired male household head significantly reduced total household expenditure on alcohol by 32%. After breaking down by different types of alcohol, we found that the retirement effect was largely driven by expenditure on liquor. We explored two potential mechanisms that may explain the retirement effect. The first mechanism relates to decreased disposable income after retirement and the second mechanism involves reduced demand of social drinking after retirement. Our findings suggest that the urban Chinese older adults experience substantial change in such health behavior as drinking as they retire. This has important public policy implications as China is facing a severe challenge of rapid population aging.

Retirement and health: Evidence from China

One typical feature of China's pension system is that retirement is mandatory. By exploiting the exogenous change created by this mandatory retirement policy, we use the mandatory retirement age as an instrument for retirement status to examine the effect of retirement on individual health using data from the China Health and Nutrition Survey (CHNS). Our main finding is that the probability of “fair” or “poor” self-reported health among white-collar workers decreases by 34 percentage point after retirement. This result is generally robust to different model specifications, alternative measures of health, and different subsamples. In addition, we deliver evidence that increased health-related exercises and the cultivation of a better lifestyle are two possible channels through which retirement affects health.

Employment and Life Satisfaction Among Middle- and Old-Aged Adults in China

The population in China has been aging rapidly over the past two decades, raising concerns about how to meet the health and long-term care needs of the growing older adult population. The productive aging framework has been applied to promote the active roles that older adults can play in society and to improve physical and psychological well-being. Employment, as an essential form of productive aging, is central to personal control, self-identify, economic resources, and social connectedness. However, there is no clear role or accommodation for older workers in China due to the mandatory retirement policy and traditional culture of gender roles. Using the World Health Organization (WHO) Study on Global Aging and Adult Health (SAGE) Wave 1 data, we examined the relationship between employment and life satisfaction in middle- and old-aged Chinese. Multiple regression analyses indicated that employment and certain work characteristics were positively related to life satisfaction in both the total and male samples. Overall, rural residents had higher levels of satisfaction than urban residents after equalizing socioeconomic resources and health. Policy and practice implications are discussed on how to improve life satisfaction through employment and how to address gender and residency gaps.

Flexible or Mandatory Retirement? Welfare Implications of Retirement Policies for a Population With Heterogeneous Health Conditions

A flexible retirement policy has often been proposed as a solution to address the social dilemma of individuals in the population having different desired retirement ages. We analyze such a policy in an overlapping generations general equilibrium framework, where individuals differ in terms of their health condition at the standard retirement age, and therefore in their suitability for remaining in the labor force beyond the standard age. In our model, workers know about their future health condition when they are young, and adjust their savings and labor supply accordingly in order to maximize their lifetime utility. The applies to situations in which workers can fairly accurately predict their health status based upon personal, family, community and professional health status tendencies. We compare the flexible retirement policy to the mandatory retirement policy in the labor and capital markets, and the effects on savings and wages in the aggregate for both healthy and unhealthy, young and elderly cohorts. For economies with sufficiently high capital intensity of production and high levels health among the elderly, a flexible retirement policy can result in a welfare reduction compared to a mandatory retirement policy. Our study links the social desirability of the two retirement policies to the technological and population structure of the economy.

MANDATORY RETIREMENT AND THE CONSUMPTION PUZZLE: DISENTANGLING PRICE AND QUANTITY DECLINES

This study investigates changes in household consumption at retirement based on a comprehensive, diary‐based household survey from China. We focus on disentangling price changes from quantity changes at retirement. The mandatory retirement policy in China provides a quasi‐experimental setting for nonparametric identification of the true causal effects of fully anticipated retirement. Using a regression discontinuity design, we find that food expenditure declines at retirement, particularly among the less‐educated group. We further show that this decline is driven by a reduction in prices rather than quantities. These findings, along with a documented increase in shopping time for food upon retirement among the less‐educated households, are consistent with a time allocation model in which education enhances the value of leisure. (JEL J26, C21)

Mandatory Retirement and the Consumption Puzzle: Prices Decline or Quantities Decline?

This paper investigates household consumption changes at retirement by utilizing a comprehensive, diary-based household survey from China. The survey contains both consumption quantity and price information, which permits separating quantity changes from price changes. The mandatory retirement policy in China provides a quasi-experimental setting for identification of the true causal effects of fully anticipated retirement. Using regression discontinuity models, we show that food expenditure declines at retirement, particularly among the low-education group, and that the decline is driven by price declines instead of quantity declines. Shopping time for food increases at retirement, consistent with the price and quantity changes.

Silverback CEOs: Age, experience, and firm value

Approximately half of S&P 1500 firms have adopted policies mandating retirement based on age. This study investigates the merits of CEO mandatory retirement policies (MRPs) using a sample of 12,610 firm-year observations from 2143 unique firms. It also addresses the question of whether CEO age is relevant to the success of an organization. We fail to find consistent evidence that MRPs are intended to limit CEO entrenchment. MRPs are, however, positively associated with CEO age and negatively associated with firm-specific human capital. Further analysis reveals that CEO age is significantly negatively related to firm value, operating performance, and corporate deal-making activity. Splitting our sample according to whether an MRP is in place, we observe that the negative impact of age exists only for those firms which do not have MRPs. We therefore conclude that MRPs represent an effective form of firm governance designed to mitigate the underperformance of older CEOs.

The retirement consumption puzzle revisited: Evidence from the mandatory retirement policy in China

Using data from China's Urban Household Survey and exploiting China's mandatory retirement policy, we use the regression discontinuity approach to estimate the impact of retirement on household expenditures. Retirement reduces total non-durable expenditures by 19%. Among the categories of non-durable expenditures, retirement reduces work-related expenditures and expenditures on food consumed at home but has an insignificant effect on expenditures on entertainment. After excluding these three components, retirement does not have an effect on the remaining non-durable expenditures. It suggests that the retirement consumption puzzle might not be a puzzle if an extended life-cycle model with home production is considered.

The Retirement Consumption Puzzle in China

Using data from China's Urban Household Survey and exploiting China's mandatory retirement policy, we use the regression discontinuity approach to estimate the impact of retirement on household expenditures. Retirement reduces total non-durable expenditures by 20 percent. Among the categories of non-durable expenditures, retirement reduces work-related expenditures and expenditures on food consumed at home but has an insignificant effect on entertainment expenditures. After excluding these three components, retirement does not have an effect on the remaining non-durable expenditures. It suggests that the retirement consumption puzzle might not be a puzzle if a life-cycle model with home production is considered.

Mandatory retirement for older professional drivers: an exploration of experiences for older Singaporean taxi drivers

ABSTRACTSingapore has an age-based mandatory retirement policy for taxi drivers. In 2006, the upper age limit of mandatory retirement was raised from 70 to 73 years for healthy, older taxi drivers. Retirement from taxi driving in Singapore often results in simultaneous retirement from work and forced driving cessation due to limited private vehicle ownership. While both retirement from work and driving cessation have been found to have negative implications for health and wellbeing in Western countries, little is known about the effects of mandatory retirement and driving cessation for healthy professional drivers in an Asian context. This study aimed to explore the mandatory retirement experience of older Singaporean taxi drivers, aged 70–73 years. In-depth interviews were conducted within a descriptive phenomenological approach with 23 older Singaporean taxi drivers who were retired or retiring drivers. Findings showed the experience to be dominated by retirement from work issues rather than by driving cessation. Three themes described the experiences: ‘stories of taxi driving’, ‘feeling lost in retirement’ and ‘contradictions of growing old in Singapore’. Taxi driving was a valued role. Despite an expected retirement, most participants were not prepared for the retirement transition. They struggled with emotional adjustment, financial vulnerability, identity, reduction in life-space and meaningful activity participation. Participants felt under-valued despite having personal achievements and support from family and ‘successful ageing’ policies. Work remained a preferred activity despite limited re-employment opportunities. The unique context of expected but forced retirement, financial need in a non-welfare system, high cultural value on work, and limited options for productive or meaningful activities and roles, predisposed this sub-group of older Singaporean men to be vulnerable retirees in terms of identity and wellbeing issues. Support for a stressful late-life transition is indicated for continued health and wellbeing.

Regression Discontinuity Applications with Rounding Errors in the Running Variable

SummaryMany empirical applications of regression discontinuity (RD) models use a running variable that is rounded and hence discrete, e.g. age in years, or birth weight in ounces. This paper shows that standard RD estimation using a rounded discrete running variable leads to inconsistent estimates of treatment effects, even when the true functional form relating the outcome and the running variable is known and is correctly specified. This paper provides simple formulas to correct for this discretization bias. The proposed approach does not require instrumental variables, but instead uses information regarding the distribution of rounding errors, which is easily obtained and often close to uniform. Bounds can be obtained without knowing the distribution of the rounding error. The proposed approach is applied to estimate the effect of Medicare on insurance coverage in the USA, and to investigate the retirement‐consumption puzzle in China, utilizing the Chinese mandatory retirement policy. Copyright © 2014 John Wiley & Sons, Ltd.

Intergenerational balance, mandatory retirement and age discrimination in Europe: How can the ECJ better support national courts in finding a balance between the generations?

This paper addresses the rather vexed question of intergenerational balance, a balance which has become increasingly more difficult to achieve as a result of the impact of the financial crisis and the demographic crisis in Europe. More particularly, the paper examines the approach of European Union law to the issue of mandatory retirement, an approach which has generally left national courts with the difficult task of balancing the rights of older workers against the claims of younger workers with limited guidance from the ECJ as to how this can be achieved. Through an analysis of the legislative and judicial approach of the European Union and through an examination of the empirical evidence relating to the impact of mandatory retirement policies on intergenerational balance, it is concluded that while the European Union's current approach is justifiable, more specific guidance should be given to national courts to assist them in determining this problematic question. Recommendations as to the scope and content of such guidance are made.

The Development of EU Case-Law on Age Discrimination in Employment: ‘Will You Still Need Me? Will You Still Feed Me? When I'm Sixty-Four’

This article addresses the development of age discrimination law in the Court of Justice and concludes that there is a marked difference in the level of discretion given to Member States in cases relating to mandatory retirement policies. The article will critique the approach of the Court of Justice to the legitimate objective test and the proportionality test in retirement cases. It will also argue that the decisions of the Court of Justice to date have all involved cases with very similar factual scenarios, and the article hypothesises how a different conclusion might be reached in cases with different factors. It also considers the impact of the Charter of Fundamental Rights on such cases. The article concludes by arguing that mandatory retirement policies may no longer be compatible with EU law and that there is a need to move towards more flexible retirement policies.

Retirement Consumption Puzzle in China

Using data from China's Urban Household Survey and exploiting China's mandatory retirement policy, we use the regression discontinuity approach to estimate the impact of retirement on household non-durable expenditures. Retirement reduces total non-durable expenditures by about 21 percent. Among the categories of non-durable expenditures, retirement reduces the work-related expenditures and the expenditures on food consumed at home but does not has a significant effect on expenditures on entertainment. After excluding work-related expenditures, expenditures on food consumed at home and expenditures on entertainment, retirement does not have a significant effect on the remained non-durable expenditures. The findings suggest that retirement consumption puzzle might not a puzzle if an extended life-cycle model with home production is considered.