Implicit Contract Retirement Theory

Implicit contract retirement theory is the deferred-compensation argument described in Older workers aren’t retiring. Should they be forced to? through Edward Lazear. In the model, younger workers may accept pay below their productivity because older workers later receive pay above their productivity, with mandatory retirement creating the endpoint that keeps the bargain bounded.

The source uses the theory to explain why mandatory retirement once made economic sense inside long-tenure firms. It also shows why the model fits the present less cleanly: workers change jobs more often, traditional pensions are rarer, and older workers may not have a secure exit.

Key Claims

• A deferred-compensation bargain needs a credible endpoint; otherwise the late-career overpayment phase can keep extending.
• Mandatory retirement can be an internal compensation-system device, not only a generational fairness claim.
• The theory depends on long-term attachment between worker and employer.
• Pension decline and job mobility weaken the old implicit contract.
• Restoring mandatory retirement without restoring retirement security could recreate the endpoint while removing the bargain’s protection.

Connections

• Edward Lazear - economist whose model anchors the source’s explanation.
• Contract Theory / 契约理论 - broader incentive and bargaining frame.
• Mandatory Retirement Policy - endpoint mechanism in the theory.
• Retirement Security Tradeoff - reason the old model may be hard to revive.
• Employer-Bargained Benefits and Career Mobility Bottleneck - benefits architecture and advancement pressure connected by the episode.