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Pathways to Retirement, Well-Being, and Mandatory Retirement Rules: Evidence from Canadian Reforms

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Abstract

Amid the aging workforce, a better understanding of the retirement transition patterns of older workers has implications for public policy. Such transitions are often characterized as complex trajectories involving multiple stages and alternative pathways which, in turn, depend on labor market regulations. This study investigates the factors affecting bridge employment and partial retirement and their subsequent effects on health, well-being and financial security, using micro-level data from a national healthy aging survey and augmented with personal income tax records. The analysis exploits policy-induced changes in retirement status arising from the elimination of mandatory retirement rules in Canada—which occurred at different times across provinces—in an instrumental variables design. The results indicate, first, that mandatory retirement is not used often by employers even when it is permissible: only approximately 7% of current retirees report that their first retirement occurred for this reason. This finding is consistent with limited international evidence on how employers use these rules. Second, we find supportive evidence that the elimination of mandatory retirement reduced the likelihood of individuals being retired by approximately 7–16% but raised the likelihood of subjective partial retirement by 5–6%. Most notably, the reforms reduced the incidence of work after retirement as workers become permitted to stay in their incumbent jobs longer, this finding being very robust across several statistical estimators commonly used in the related literature. No discernible effects are observed on individuals’ health, well-being or future financial security. These findings suggest that costs of mandatory retirement are limited to adjustment frictions among individuals searching for new work or entering retirement earlier than desired under the prevailing wage.

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Notes

  1. Refer to Flanagan (1985), Reid (1988), and Shannon and Grierson (2004) for discussions of the Manitoba and Quebec reforms. The following legislation eliminated mandatory retirement in the later-adopting provinces. Alberta: Human Rights Citizenship and Multiculturalism Act (now the Alberta Human Rights Act). Ontario: Human Rights Code. Newfoundland and Labrador: Human Rights Code. Saskatchewan: Saskatchewan Human Rights Code Amendment Act, 2006 (Eliminating Mandatory Retirement). British Columbia: Bill 31–2007 – Human Rights Code (Mandatory Retirement Elimination) Amendment Act, 2007. Nova Scotia: Bill 163 – An Act Respecting the Elimination of Mandatory Retirement.

  2. The reform year is set to 1981 for Manitoba on the basis that a court ruling to unequivocally establish that mandatory retirement was not permissible, thereby banning the practice, did not occur until that time. Reid (1988) contends that the initial legislation passed that led to this court ruling was not intended to be used to abolish mandatory retirement. For the same reason, the 1973 reform in New Brunswick and the 1988 reform in Prince Edward Island are not applicable to this analysis because the former did not effectively ban such rules and the latter did not achieve this goal until after the survey year of the dataset used in this analysis. Our results are robust to using initial reform dates rather than court ruling dates in the analysis because these provinces are small and the number of individuals in the sample affected by this choice does not drive the identification.

  3. In Canada, the “normal” age of retirement—i.e., the age at which individuals can begin to collect income from public pensions at the full rate of benefit entitlement—is 65 years old. Many employers that impose mandatory retirement rules set the timing of job separation to align with this age threshold.

  4. Provinces continue to allow exceptions to the elimination of mandatory retirement. For example, all provinces except Manitoba allow mandatory retirement for provincial court judges (65 years old in Saskatchewan, 70 in Alberta, Quebec, New Brunswick and Nova Scotia, and 75 in British Columbia, Ontario and Newfoundland and Labrador). In Ontario and Quebec, mandatory retirement remains permissible for firefighters (60 years old) and police officers (65 years old), respectively. At the federal level, exceptions include Royal Canadian Mounted Police officers and members of the Canadian Armed Forces (60 years old), diplomats (65 years old), and federal and tax court judges (75 years old). Thus, reforms to eliminate mandatory retirement are expected to significantly reduce this practice but not to eliminate it altogether.

  5. A common problem in the analysis of Canadian provincial policy reform is that there are only 10 provinces, which means that clustering on this dimension is affected by the small number of cells. Clustering on the intersection of two variables is sometimes discouraged (Cameron and Miller 2015), but it is conventional to cluster on both variables relevant for identification in Canadian policy research due to a lack of better alternatives; a few notable examples are Milligan and Stabile (2007), Baker et al. (2008), and Oreopoulos (2006b).

  6. Table 4 shows that the results are robust to several model permutations. First, Manitoba and Quebec are dropped because their reforms occurred very early compared with the majority of provinces. Second, cases were dropped where the survey year equals the reform year, for which there may be insufficient time between the two events to observe any effect in the data. Third, the analysis is conditioned on progressively younger individuals given that the older group is far-removed from their retirement decisions. Table 5 assesses whether there is heterogeneity across subgroups of workers by: sex; marital status; level of educational attainment; and level of income. The results suggest that women were slightly more affected by the reforms than men, as were unmarried workers, those with high education, and those with low earnings. Comparisons across groups are confounded by the large standard errors associated with each of the estimates. The only sub-group for whom the predicted effect of the reforms is close to zero is individuals with high income but the sample size is very small in this case. Given this difficulty in interpreting the heterogeneity in first-stage effects of the reform, we refrain from testing for differential second-stage effects across groups and instead focus on overall impacts.

  7. We also implemented this analysis using an indicator of high mental health as the dependent variable (not shown, but available upon request) but these results also do not detect any significant effects.

  8. More precisely, approximately 81.9% of 2009 CCHS-HA responses for individuals 65 years old and over were successfully linked to tax data spanning the years 2010 to 2013 inclusive based on a deterministic linkage approach that utilizes individuals’ names, addresses, and other factors such as year of birth and sex. The linkage was carried out with help from a methodology team at Statistics Canada to ensure that the resulting analytical dataset did not contain respondents’ identifying information and their anonymity was fully maintained from the researchers.

  9. Specifically, we set \( {\mathrm{Outcome}}_{ip}=\log \left({\overline{\mathrm{Income}}}_{ip}+1\right) \) so that the variable is defined for any non-negative value of income. Very few individuals have strictly negative total before-tax income averaged over this four-year timeframe and the results are robust to taking the log without adding one to its argument.

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Acknowledgements

The authors thank David Gray, Douglas May, Muhammad Mudasser, and participants of the 2018 Canadian Economics Association (CEA) 52nd Annual Conference for helpful discussions and feedback. This study benefited from the financial support of Collaborative Applied Research in Economics (CARE), Memorial University of Newfoundland. The views and opinions expressed in this paper are those of the authors and do not necessarily reflect the views of Statistics Canada or the Government of Canada. Any errors are our own.

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Authors and Affiliations

  1. Social Analysis and Modelling Division, Statistics Canada, Ottawa, Canada

    Derek Messacar

  2. Department of Economics, Memorial University of Newfoundland, St. John’s, Canada

    Derek Messacar

  3. Retirement and Savings Institute, HEC Montréal, Montréal, Canada

    Derek Messacar

  4. Department of Economics, University of Toronto, Toronto, Canada

    Petr Kocourek

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Correspondence to Derek Messacar.

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Messacar, D., Kocourek, P. Pathways to Retirement, Well-Being, and Mandatory Retirement Rules: Evidence from Canadian Reforms. J Labor Res 40, 249–275 (2019). https://doi.org/10.1007/s12122-019-09292-1

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