Why Is There Mandatory Retirement?

  title={Why Is There Mandatory Retirement?},
  author={Edward P. Lazear},
  journal={Journal of Political Economy},
  pages={1261 - 1284}
  • E. Lazear
  • Published 1 December 1979
  • Economics
  • Journal of Political Economy
This paper offers an explanation of the use of mandatory-retirement clauses in labor contracts. It argues that the date of mandatory retirement is chosen to correspond to the date of voluntary retirement, but the nature of the optimal wage profile results in a discrepancy between spot wage and spot VMP (value of the worker's marginal product). This is because it is preferable to pay workers less than VMP when young and more than VMP when old. By doing so the "agency" problem is solved, so the… 
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