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Filistrucchi, and T. Corrigendum and updated supplement with code. Klein, W. Bonsang, E. Filistrucchi, L. Klein, and T. A shorter and less technical version with a slightly different focus appeared as: Filistrucchi, L. Harrington and Y. Katsoulakos eds. Amann, R. Klein : Returns to Type or Tenure? Hullegie, P. A shorter version with additional results appeared as: Hullegie, P. Lambertz, G. Spagnolo, and K.

Geradin, E. Keunen, T. Michielsen, and J. Does the framing of patient cost-sharing incentives matter? The effects of deductibles vs. Hayen and Martin Salm. Individuals have to pay for medical care until they hit the cost-sharing limit. This figure shows that until then, expenditures are lower. The main point of our paper is to show that not only this financial incentive matters, but also how it is framed.

One can see in the figure that expenditures are lower when financial incentives are framed in terms of a deductible. Understanding how health care utilization responds to cost-sharing incentives is of central importance for providing high quality care and limiting the growth of costs. While there is compelling evidence that patients react to financial incentives, it is less well understood how and why specific aspects of the design of contracts shape the size of this reaction. In this paper, we focus on the question whether the framing of cost-sharing incentives has an effect on health care utilization.

To study this we make use of a policy change that occurred in the Netherlands. Until , patients received a a no-claim refund if they consumed little or no health care; from onward there was a deductible. This means that very similar economic incentives were first framed in terms of smaller gains and later as losses. We use claims-level data for a broad sample from the Dutch population to estimate whether the reaction to economic incentives was affected by this.

Our empirical approach is to exploit within-year variation using an instrumental variables approach while controlling for differences across years. Our central finding is that patients react to incentives much more strongly when they are framed in terms of losses. Simulations based on our estimates show that the effect on yearly spending is 8. This suggests that discussions on the optimal design of cost-sharing incentives should not only involve coinsurance rates and cost-sharing limits, but also how these are presented to patients. Part-time jobs typically involve routine and repetitive tasks that require no long-term cooperation and facilitate direct monitoring so that the provision of incentives through deferred compensation may be not necessary Hutchens Or put differently, firms with deferred compensation use this type of incentive scheme more likely for core jobs in the internal labor market but not for peripheral jobs.

If they hire older workers, they only hire them for peripheral jobs as those jobs do not require deferred compensation to motivate workers. Altogether, Heywood et al. Deferred compensation not only decreases the probability that older workers are hired. It also decreases the probability that they are hired for jobs with high quality when they are hired. Of course, some older workers may well desire part-time employment.

They may see it as part of a phasing out of work. Nonetheless the basic point of Heywood et al. Finally, Pfeifer confirms that if older workers are hired, they are less likely to receive deferred compensation. Firms pay higher entry wages and flatter wage-tenure profiles to older entrants. This finding also fits the notion that employers prefer to motivate older hires through contemporaneous incentives as there is less room for deferred compensation. In sum, the use of deferred compensation helps explain the less dynamic labor market for older workers low job exit and job entry rates and, in particular, the severe difficulties they face in finding a new job.

This gives rise to the question what types of firms use deferred payment schemes such as employer provided pensions and seniority wages. Schnabel and Wagner find that larger firms, older firms and those with a high share of white-collar workers are more likely to provide pensions. The share of female employees is a negative determinant. Zwick estimates the determinants of rewarding seniority. He shows that export activities, firm size and the qualification of the workforce are positive determinants while high entry wages, the share of foreigners and the share of female employees are negative determinants.

Industrial relations play also a role. We will return to that role below. The finding that deferred compensation hurts the hiring prospects for older workers raises the issue of possible policy initiatives. One might argue that the use of deferred compensation should be discouraged in order to increase the chance that unemployed older people find a new job. However, whether this improves the labor market prospects of older people in general is not clear. While firms with deferred compensation are on the one hand much less willing to hire older workers, they employ on the other hand a higher share of older workers.

Thus, a reduced use of deferred compensation may have a negative effect on the share of older workers employed by the firms. In the end, the crucial question is whether stabilizing the employment of older people who have a job or creating new opportunities for older people who have no job will be more helpful in times of demographic change.

Boersch-Supan argues that population aging will change the structure of demand for goods involving substantial reallocation of employment across different sectors and, hence, resulting in an increased mobility of labor. This may indicate that also the labor market for older workers must become more dynamic in the future so that policy should put more weight on improving the labor market prospects of older people who seek for new jobs.

Of course, one may question whether there is even need for policy intervention. Firms choose the incentive schemes that maximize the present value of their expected profits. If a firm does not use deferred compensation, it has to rely on contemporaneous incentives to motivate workers. For example, efficiency wages stand as an alternative to deferred compensation. Acemoglu and Newman show that providing incentives through deferred compensation can be less costly than providing contemporaneous incentives through efficiency wages also see Macpherson et. Thus, if a policy intervention induces firms to switch from deferred compensation to contemporaneous incentives, this may result in increased labor costs implying a negative effect on the level of employment in general.

It is important to recognize that while market-driven forces are important, institutional frameworks also influence the use of deferred compensation.

References

Specifically, industrial relations have been shown to influence the use of deferred compensation. Industrial relations in Germany are characterized by a dual structure of employee representation with both works councils and unions Huebler and Jirjahn Zwick finds that the incidence of a works council in a firm and the coverage by a collective bargaining agreement increase the probability that the firm has a seniority wage profile steeper than the sector average.

At issue is whether the influence of industrial relations harms or improves economic welfare. On the one hand, one may argue that worker organizations foster internal labor markets over the course of their rent seeking activities Addison and Siebert On the other hand, worker organization may help overcome market failures. Specifically, works councils may foster trust and cooperation within firms Freeman and Lazear ; Smith This may be also important for a successful implementation of deferred compensation Jirjahn Deferred compensation presupposes that the employer promises employment security.

Yet, the employer has an incentive to behave opportunistically and to dismiss workers late in their tenure in order to capture their quasi-rents see the appendix for a simple theoretical illustration. A works council may ensure that promises made are also kept. A series of studies have shown that works councils are specifically effective in increasing firm performance when the firm is covered by collective bargaining Jirjahn In this case, distributional conflicts are moderated outside the firm so that works councils can specialize in the creation rather than in the redistribution of rents.

Against this background it is interesting that Heywood et al. This indicates the influence of industrial relations on the use of deferred compensation is not primarily driven by rent seeking. It rather reflects the potential of industrial relations institutions to overcome market failures in the provision of appropriate incentives for workers.

Furthermore, one must take into account that the extensive system of apprenticeship training in Germany may contribute to the strong role of deferred compensation. Young people use the apprenticeship to enter internal labor markets that make further investment so firms can retain workers after training Soskice ; Harhoff and Kane This binds workers and firms suggesting longer tenure and reduced hiring of older workers.

Industrial relations influence the system of apprenticeship training. Kriechel et al. These firms are also more likely to retain workers after training. The share of former apprentices still employed with the same firm after 5 years is significantly higher if a works council is present. Confirming previous research, the authors find that the effects of works councils are more pronounced for firms covered by collective bargaining agreements. In conclusion, discouraging the use of deferred compensation would imply that institutions that now contribute to economic performance in Germany would need to be substantially changed.

These changes could be counterproductive and would entail ambiguous employment effects. The crucial question whether or not these institutions will still work in times of demographic change. One must recognize that the labor market implications of deferred compensation schemes depend on how they are actually incorporated into the general HRM and retirement policy of firms. Viewed in this way, the experience of Japan may be useful. Larger Japanese firms are known for their extremely steep tenure wage structure in which wages seemingly advance largely independent of variations in worker productivity growth Fukao et al.

This is combined with a strict and early mandatory retirement requirement often at age 60 and extremely long job tenure at these same larger firms. From what has been described, one would anticipate poor labor market dynamics for older workers with the associated difficulties in getting hired. Yet, the reality is rather different. Figure 1 indicates that the labor force participation rate of older Japanese is much higher and that it does not drop off as steeply with age when compared to Germany.

Heywood and Siebert suggest some of the reasons for the comparative Japanese success in retaining older workers. They argue that Japan has been highly successful in separating an initial labor market that uses internal labor markets and deferred compensation from a subsequent labor market that uses contemporaneous incentives and more nearly spot labor markets.

This is facilitated by the common mandatory retirement age which is allowed because of the absence of US style age discrimination laws. Companies make large lump sum severance payments as employees leave at the end of their lifetime employment typically at age They then face the prospect of finding a new job but this is facilitated by employment protection laws that apply to regular work but not to temporary jobs OECD , p.

As a consequence, it is extremely common for workers to retire at age 60 but immediately sign a series of short-term temporary contracts with either their original employer or with others. Individuals in Japan who work till 65 receive a state pension but this is paid irrespective of whether they are working or not. This also helps separate the two sequential labor markets and means that the pension does not affect retirement decisions.

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The consequence of this arrangement is that Japan has an extremely low implicit tax on continued work after age Thus, in Japan there are few disincentives for workers to continue in the labor market and few disincentives for firms to hire older workers. The set of interlocking institutions that to succeed in one country may not be able to be broken into parts are be successfully grafted into the institutions of another country. We suggest that the continued lack of mobility and opportunity in the market of older workers reflects, in large part, the nature of life cycle contracts.

Such contracts backload compensation to elicit loyalty, learning and effort from workers. While this may be efficient, it has as a consequence the tendency of firms to employ older workers but not hire them. The evidence of this seems clear both in Germany and in other countries. First, there is substantial evidence that such backloading of compensation exists. Second, it is nearly unanimous that in those circumstances with extensive backloaded compensation, older workers are less likely to be hired.

More research is needed on the types of jobs in which older workers are actually hired. Is that also true for temporary appointments? Can it also be confirmed that when hired for permanent jobs, older workers are less likely to be in career jobs with chances for significant advancement? Related to these questions are patterns of self-employment. The Japanese case is particularly interesting as workers frequently retire from an employer, ending a life time career as an employee, but continue to work for the same employer as a self-employed contractor.

It would be interesting to identify how common such practices are in Germany. While some of the answers to these additional research questions remain outstanding, the need to address German institutions and policies remains. We have argued that some of the institutions of the German labor market, works councils and apprenticeships in particular, interact with life-cycle contracting in a largely efficient fashion.

Thus, attempts to discourage deferred compensation run the risk of generating substantial harms. Here again, the Japanese case remains intriguing as Japan also has significant deferred compensation that plays a critical role in motivation, learning and loyalty. The difference is the ease with which workers in Japan can terminate their career and continue to work, largely without implicit penalty, at their current firm. It may be worth exploring if German pension regulation and structure can be modified to further facilitate alternative types of employment by older workers after their formal retirement.

Against this background, future research should also examine if there is a link between the possibility of early retirement and the use of deferred compensation. While early retirement is often thought to reduce the labor force participation of older workers, it may provide flexibility for firms and workers to determine the optimal length of life cycle contracts. Furthermore, we note that active labor market policy can play an important role in the hiring situation of older employees.

Older job seekers often apply for the wrong jobs Bellmann and Brussig One dimension of improving job search would be to discourage older workers from applying for jobs with deferred compensation and to help older workers find jobs with contemporaneous incentives. We recognize that the future of deferred compensation depends on changes in the nature of production. On the one hand, new technologies may entail improvements in the monitoring of worker performance.

This could reduce the need to provide strong incentives through deferred compensation. On the other hand, there appears to be a reorganization of work toward more complex and multi-faceted jobs. This may make monitoring more difficult and, thus, requires an increased use of deferred compensation to motivate workers.

We also recognize that the future of deferred compensation depends on changes in industrial relations Addison et al. For many years, the collective bargaining coverage and the prevalence of works councils have been decreasing. This may result in a declining use of deferred compensation. An aging population may change the demand for goods resulting in an increased reallocation of jobs. This could make it more difficult for firms to provide life-cycle contracts to employees.

As a consequence, the labor market for older workers may become more dynamic in the future. Furthermore, demographic change may imply that firms will face increased difficulties in filling their vacancies. These difficulties may be a particularly severe in Germany which faces a large decrease in its natural working-age population. This will have ambiguous consequences for the use of life-cycle contracts. On the one hand, firms may increasingly rely on those contracts to retain workers so that they have a smaller number of vacancies to fill. On the hand, firms may increasingly substitute contemporaneous incentives for life-cycle contracts and so fill their vacancies with older hires.

We conclude then by recognizing that the implications of demographic change for the use of incentives and so for the hiring and employment policies of older workers stand as important future research. Vorliegende empirische Studien liefern hier jedoch ausgesprochen heterogene Ergebnisse. Dies zeigt insbesondere auch die japanische Erfahrung. Brenke and Zimmermann argue that rising educational levels of older workers have also contributed to their increase in the labor force participation.

We recognize that measurement problems and high levels of aggregation potentially limit studies on age structure and productivity. These limits are far less severe in studies such as Boersch-Supan and Weiss that use insider econometrics.

See Riach and Rich for a review of the early field experiments on discrimination and Neumark for a methodology to improve the estimates that emerge from such audits and correspondence studies. Lahey presents evidence going even further. Goldin makes a similar argument claiming that women are less well motivated by delayed compensation because of their lower expected tenure. See Gokhale et al.

We note that studies that examine wage-age and productivity-age profiles instead of wage-tenure and productivity-tenure profiles provide rather mixed evidence. Cataldi et al. They show that younger workers are paid below and older workers above their marginal productivity. Cardoso et al. The wages of younger workers increase in line with productivity while the wage increases lag behind productivity gains as prime-age approaches. Yet, age is only an incomplete proxy for tenure. Thus, it is more difficult to identify patterns of deferred compensation by examining age-tenure and age-productivity profiles.

See Robinson and Zhang for a detailed discussion on human capital investment and employee share ownership. See Rabe for a detailed discussion on employer provided pensions in Germany. Farber shows for the U. Open Access This article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution, and reproduction in any medium, provided the original author s and the source are credited. Skip to main content Skip to sections. Advertisement Hide. Download PDF.

The hiring and employment of older workers in Germany: a comparative perspective. Open Access. First Online: 10 December Open image in new window. Table 1 German yearly job entries as a percent of age group employment. Age group 20—49 30 30 50—54 15 15 55—59 12 12 60—64 9 8. Acemoglu, D. Adams, S. Addison, J. Oxford Rev. A comparative analysis of Germany and Great Britain.

Aigner, D. Labor Relat. Aubert, P. Backes-Gellner, U. Becker, G. Bell, D. Bellmann, L. Labour Mark. Bendick, M. Aging Soc. Bertschek, I. Firm-level evidence from Germany. Boersch-Supan, A. In: Holtzmann, R. Bonin, H. Boockmann, B. Bossler, M. Brenke, K. Buesch, V. Cardoso, A. The Japanese case is particularly interesting as workers frequently retire from an employer, ending a life time career as an employee, but continue to work for the same employer as a self-employed contractor.

It would be interesting to identify how common such practices are in Germany. While some of the answers to these additional research questions remain outstanding, the need to address German institutions and policies remains. We have argued that some of the institutions of the German labor market, works councils and apprenticeships in particular, interact with life-cycle contracting in a largely efficient fashion. Thus, attempts to discourage deferred compensation run the risk of generating substantial harms.

Here again, the Japanese case remains intriguing as Japan also has significant deferred compensation that plays a critical role in motivation, learning and loyalty. The difference is the ease with which workers in Japan can terminate their career and continue to work, largely without implicit penalty, at their current firm. It may be worth exploring if German pension regulation and structure can be modified to further facilitate alternative types of employment by older workers after their formal retirement. Against this background, future research should also examine if there is a link between the possibility of early retirement and the use of deferred compensation.

While early retirement is often thought to reduce the labor force participation of older workers, it may provide flexibility for firms and workers to determine the optimal length of life cycle contracts. Furthermore, we note that active labor market policy can play an important role in the hiring situation of older employees.

Older job seekers often apply for the wrong jobs Bellmann and Brussig One dimension of improving job search would be to discourage older workers from applying for jobs with deferred compensation and to help older workers find jobs with contemporaneous incentives.

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We recognize that the future of deferred compensation depends on changes in the nature of production. On the one hand, new technologies may entail improvements in the monitoring of worker performance. This could reduce the need to provide strong incentives through deferred compensation. On the other hand, there appears to be a reorganization of work toward more complex and multi-faceted jobs. This may make monitoring more difficult and, thus, requires an increased use of deferred compensation to motivate workers.

We also recognize that the future of deferred compensation depends on changes in industrial relations Addison et al.

[Pub.42JNE] Change Communications Jahrbuch 2010 (German Edition) PDF |

For many years, the collective bargaining coverage and the prevalence of works councils have been decreasing. This may result in a declining use of deferred compensation. An aging population may change the demand for goods resulting in an increased reallocation of jobs. This could make it more difficult for firms to provide life-cycle contracts to employees.

As a consequence, the labor market for older workers may become more dynamic in the future. Furthermore, demographic change may imply that firms will face increased difficulties in filling their vacancies. These difficulties may be a particularly severe in Germany which faces a large decrease in its natural working-age population. This will have ambiguous consequences for the use of life-cycle contracts. On the one hand, firms may increasingly rely on those contracts to retain workers so that they have a smaller number of vacancies to fill.

On the hand, firms may increasingly substitute contemporaneous incentives for life-cycle contracts and so fill their vacancies with older hires. We conclude then by recognizing that the implications of demographic change for the use of incentives and so for the hiring and employment policies of older workers stand as important future research.

Vorliegende empirische Studien liefern hier jedoch ausgesprochen heterogene Ergebnisse. Dies zeigt insbesondere auch die japanische Erfahrung. Brenke and Zimmermann argue that rising educational levels of older workers have also contributed to their increase in the labor force participation.

We recognize that measurement problems and high levels of aggregation potentially limit studies on age structure and productivity. These limits are far less severe in studies such as Boersch-Supan and Weiss that use insider econometrics. See Riach and Rich for a review of the early field experiments on discrimination and Neumark for a methodology to improve the estimates that emerge from such audits and correspondence studies.

Lahey presents evidence going even further. Goldin makes a similar argument claiming that women are less well motivated by delayed compensation because of their lower expected tenure. See Gokhale et al. We note that studies that examine wage-age and productivity-age profiles instead of wage-tenure and productivity-tenure profiles provide rather mixed evidence. Cataldi et al. They show that younger workers are paid below and older workers above their marginal productivity. Cardoso et al.

The wages of younger workers increase in line with productivity while the wage increases lag behind productivity gains as prime-age approaches. Yet, age is only an incomplete proxy for tenure. Thus, it is more difficult to identify patterns of deferred compensation by examining age-tenure and age-productivity profiles. See Robinson and Zhang for a detailed discussion on human capital investment and employee share ownership. See Rabe for a detailed discussion on employer provided pensions in Germany. Farber shows for the U.

Open Access This article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution, and reproduction in any medium, provided the original author s and the source are credited. Skip to main content Skip to sections. Advertisement Hide. Download PDF. The hiring and employment of older workers in Germany: a comparative perspective.

Open Access. First Online: 10 December Open image in new window. Table 1 German yearly job entries as a percent of age group employment. Age group 20—49 30 30 50—54 15 15 55—59 12 12 60—64 9 8. Acemoglu, D. Adams, S. Addison, J. Oxford Rev. A comparative analysis of Germany and Great Britain. Aigner, D. Labor Relat. Aubert, P. Backes-Gellner, U. Becker, G. Bell, D.

Bellmann, L. Labour Mark. Bendick, M. Aging Soc. Bertschek, I. Firm-level evidence from Germany. Boersch-Supan, A. In: Holtzmann, R. Bonin, H. Boockmann, B. Bossler, M. Brenke, K. Buesch, V. Cardoso, A. An empirical investigation of age-productivity and age-wage nexuses. De Economist. Cataldi, A.

Coppola, M. Retirement expectations and increases in the statutory retirement age. Daniel, K. Dietz, M. Dlugosz, S. Dohmen, T. Dong, X. Duval, R. Ebbinghaus, B. Farber, H. Alternative and part-time employment arrangements as a response to job loss. Labor Econ. Flabbi, L. Freeman, R. In: Rogers, J. Works Councils—Consultation, Representation and Cooperation, pp. Frosch, K.

Fukao, K. Garnero, A. Goebel, C. Gokhale, J. Goldin, C. Grund, C. Harhoff, D. Hart, R. Heyma, A. Heywood, J. Hirsch, B. In: Hamm, I. Springer, New York Google Scholar. Hu, L. Huck, S. Huebler, O. Hutchens, R. In: Mitchell, O. As the Workforce Ages, pp. Idson, T. Ilmakunnas, P. Jirjahn, U. Koller, B. Mitteilungen Arbeitsmarkt- Berufsforschung. Kotlikoff, L. Kriechel, B. Lahey, J. Law Econ. Lallemand, T. Lazear, E. Liu, J. Macpherson, D. Mahlberg, B. Manger, C.

Mazerolle, M.

The hiring and employment of older workers in Germany: a comparative perspective

Relations Industrielles—Ind. Medoff, J. Neumark, D. OECD: Ageing and employment policies—live longer, work longer. OECD: Employment outlook. Oi, W. Petersen, M. Pfeifer, C. Evidence from a new type of data for German enterprises. Rabe, B. Schmollers Jahrbuch. Reynolds, J. Riach, P. Roberts, J. Geneva P. Robinson, A. Schleife, K. Schnabel, C. In: Frick, B. Die Anreizwirkungen betrieblicher Zusatzleistungen, pp. Schnalzenberger, M. Schneider, L. Scott, F. Skirbekk, V. Vienna Yearbook of Population Research. Ageing Horizons. Smith, S. Soskice, D.

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