Suppose mandatory retirement rules are illegal and firms undertake various strat
ID: 1119301 • Letter: S
Question
Suppose mandatory retirement rules are illegal and firms undertake various strategies to induce voluntary retirements of workers at the age of 65. Some of these possible strategies are listed below. The firm’s objective is to unambiguously increase the incentives for people over 65 to retire, but to do so in a way that offers the strongest incentives to the least productive of the older workers to retire. Evaluate each of the following strategies to determine whether it will accomplish the firm’s objectives:
a) Cut the wages of all workers after the age of 65.
b) Provide a large lump-sum payment to anyone who quits his or her employment at the firm at age 65.
c) Increase the monthly pension benefit of anyone who retires (and does not work elsewhere) at age 65.
Explanation / Answer
a) Cut the wages of all workers after the age of 65
Compulsory retirement cannot be done, so firms are using various strategies to induce employees over 65 years of age to opt for voluntary retirement. But they want it to happen in such a way that the oldest of lot or the least productve members of the lot go for this so that they can make others work and get the maximum work done by the employees. If the wages of all workers after the age of 65 are cut then the possibility is there that the productive workers or the workers who actually contribute their expertise to the company may also go for voluntary retirement which is not a good sign for the company. So this option will not be in sync with the company's objectives.
b) PRovide a large lump sum payment to anyone who quits his or her employment at the firm at age 65
This option will definitely help the company to solve the objective as when workers of age 65 will get a large lump sum payment if they quit then they will think about it and decide to go for voluntary retirement.
c) Increase the monthly pension benefit of anyone who retires (and does not work elsewhere) at age 65
In this option there may be or may not be chances of company's objective of voluntary retirement being fulfilled. Because of the clause " does not work elsewhere", if that clause was not there then workers of age 65 may have gone for voluntary retirement as they could have pension from this company and if they wished to work and are in a condition to give productive results then they can work in some other company too. But due to that clause working elsewhere is not possible so many workeres might not go for pension and may continue working here only and rather prefer earn salary.