Deadwood Labor? The Effects of Eliminating Employment Protection for Older Workers

We analyze mandatory retirement in Sweden, which eliminates employment protection at age 67. Employment falls by about 10 percent and total average earnings by about 20 percent immediately at age 67. Eight percent of jobs separate immediately due to loss of protection, with effects stemming from jobs with stronger initial employment protection (long tenure, firms subject to “last in, first out” rules), and those in the public sector. We examine the effects on continuing jobs. While wages appear rigid, we uncover novel, sizable intensive-margin hours reductions, resulting in an 8 percent drop in earnings conditional on staying on the job. (JEL J14, J22, J26, J31, J63, K31)