Dismissals scheduling and the employment of older workers

A model is built to study the joint effect on management of the older workforce of three crucial institutions: employment protection, the pension system, and the unemployment insurance (UI). More precisely, the interest is in the impact of corresponding settings (dismissal costs, replacement rates, UI benefit duration, statutory retirement age) on the age, at the date of job termination, of workers who experience a spell of unemployment before retiring. The opportunity cost to the worker of early exit from employment is shown to be increasing with the time distance until retirement. However, under specific assumptions particularly relevant within the continental Europe context, it is shown that corresponding marginal opportunity cost is very low provided time until retirement remains below the potential UI benefit duration (Lambda), much higher above. This makes dismissals at a time distance until retirement close to Lambda much more likely than at a shorter one. Comparative statics suggests that age (at the date of dismissal) is increasing with wage and decreasing with Lambda.