Social security benefits and employer behavior: evaluating social securityearly retirement benefits as a form of unemployment insurance

Employers often shed older workers by encouraging them to "take" early reti rement. An implicit contract model suggests that this behavior will be infl uenced by the social security early retirement program. When demand is weak and layoffs are necessary, social security benefits can act like a form of unemployment insurance, effectively subsidizing workforce reductions by lo wering the cost to the firm of shedding older workers. Since social securit y benefits are not subject to experience rating, the result is an inefficie ntly high level of early retirements. This paper concludes with a discussio n of policies for restoring early retirements to efficient levels.