Adverse Selection and Incentives in an Early Retirement Program

Kenneth T. Whelan, Ronald G. Ehrenberg, Kevin F. Hallock, Ronald L. Seeber

NBER Working Paper No. 17538
Issued in October 2011
NBER Program(s):Economics of Education, Labor Studies

We evaluate potential determinants of enrollment in an early retirement incentive program for non-tenure-track employees of a large university. Using administrative record on the eligible population of employees not covered by collective bargaining agreements, historical employee count and layoff data by budget units, and public information on unit budgets, we find dips in per-employee finance in a budget unit during the application year and higher recent per employee layoffs were associated with increased probabiliites of eligible employee program enrollment. Our results also suggest, on average, that employees whose salaries are lower than we would predict given their personal characteristics and job titles were more likely to enroll in the early retirement program. To the extent that employees' compensation reflects their productivity, as it should under a pay system in which annual salary increases are based on merit, this finidng suggests that adverse selection was not a problem with the program. That is, we find no evidence that on average the "most productive" employees took the incentive.

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Document Object Identifier (DOI): 10.3386/w17538

Published: “Adverse Selection and Incentives in Early Retirement Programs” (with K. Whelan, K. Hallock, and R. Seeber) Research in Labor Economics (2012)

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