Pensions, non-discrimination policies, and the employment of older workers

This paper analyses firms' decisions to hire older workers. We model the role of pensions in back-loading pay for specifically trained workers. We then evaluate the effects of imposing age discrimination rules and non-discriminatory fringe benefit rules, and analyse the consequences for the firms' decision to hire older versus younger individuals. The model predicts that defined pension plans deter the hiring of older workers, but only if hired for entry level positions. The reason is that the wages of this group cannot be lowered enough to pay for the benefits. Data from a new survey of employers are used to test this hypothesis. The findings show that a more generous defined benefit pension plan reduces employment prospects for older, entry level workers. Employers offering defined benefit pension plans employ older workers, but tend not to hire them into entry level jobs.