Why was there mandatory retirement?

Abstract

Lazear argues that hours constraints and mandatory retirement form part of an efficient contract which inhibits worker shirking. He argues that initially workers earn less than their VMP and must work more than they want while later they earn more than their VMP and must work less. However, if bonding is costly, incentive compatibility requires that workers can never exceed the contracted hours. In addition, hours will be set so that VMP exceeds the disutility of employment. Consequently, being paid more than their VMP is only sufficient not necessary for workers to be constrained to work less than they wish.

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