Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers

Abstract

Hutchens (1986, Journal of Labor Economics 4(4), pp. 439-457) argues that deferred compensation schemes impose fixed-costs to firms and, therefore, they employ older workers but prefer to hire younger workers. This paper shows that deferred compensation can be a recruitment barrier even without these fixed-costs, because adjustments of wage-tenure profiles for older new entrants can lead to adverse incentive effects from a fairness perspective. A personnel data set and a linked employer-employee data set reveal that wage-tenure profiles of white-collar workers are indeed adjusted according to entry age but that firms still hire few older workers.

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