Training and retirement patterns

Life-cycle theory predicts that employers enter into implicit contracts with newly hired employees to ensure rent-sharing and to decrease turnover after firm-specific training investments. Typically, these implicit contracts would include both upward sloping earning profiles and mandatory retirement. In this article, we empirically test the prediction that workers with firm-specific skills are restrained in their options to continue working. Therefore, they are more likely to retire at common mandatory retirement dates than those with general skills. Using the US National Longitudinal Survey of Older Men, we find that workers who participated in firm-specific training in their early careers do indeed retire earlier than those with general skills. The results show that compulsory retirement plans force these older workers to retire when they reach the common mandatory retirement age of 65. The results presented in this article are highly relevant for public policies in European and other industrialized countries that aim to increase labour force participation of the elderly. As our study demonstrates, the effectiveness of institutional arrangements to postpone retirement will also depend on training policies of employers and the type of skills workers acquired in the past.