Efficient Windows and Labor Force Reduction

45 Pages Posted: 12 Apr 2004 Last revised: 17 Sep 2010

See all articles by Robin L. Lumsdaine

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; Erasmus University Rotterdam (EUR) - Department of Econometrics; National Bureau of Economic Research (NBER)

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: May 1990

Abstract

Recently many U.S. firms have offered "window" plans that provide bonuses to a group of workers if the worker retires within a specified short time span. This paper examines a window plan at a Fortune 500 firm, and addresses two main issues. First, what was the effect of the window plan on departures? Second, assuming a variety of possible firm objectives, what would be the design of an efficient window plan? These questions are addressed using the retirement model in Stock and Wise [1988a, 1988b] . The model, estimated using data for an earlier year, predicts well out-of-sample the subsequent large increase in retirements under the window plan. We find that while the firm successfully maximized departures, if its goal was to minimize either expected future wage payments or the current cost per induced retirement, the firm could have saved more with efficient plans constructed using the model. One interpretation is that the firm was primarily interested in reducing the overall size of the labor force or in retiring older employees to allow promotion of younger employees.

Suggested Citation

Lumsdaine, Robin L. and Stock, James H. and Wise, David A., Efficient Windows and Labor Force Reduction (May 1990). NBER Working Paper No. w3369. Available at SSRN: https://ssrn.com/abstract=282682

Robin L. Lumsdaine (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James H. Stock

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-0502 (Phone)
617-496-5960 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
929
PlumX Metrics