Ending a Career in the Auto Industry: '30 and Out' (Springer Studies in Work and Industry)

Ending a Career in the Auto Industry "30 and Out"

PLENUM STUDIES IN WORK AND INDUSTRY Series Editors: Ivar Berg, University of Pennsylvania, Philadelphia, Pennsylvania and Arne L. Kalleberg, University of North Carolina, Chapel Hill, North Carolina WORK AND INDUSTRY Structures, Markets, and Processes Arne L. Kalleberg and Ivar Berg Current Volumes in the Series: THE BUREAUCRATIC LABOR MARKET The Case of the Federal Civil Service Thomas A. DiPrete THE EMPLOYMENT RELATIONSHIP Causes and Consequences of Modern Personnel Administration William P. Bridges and Wayne J. Villemez ENDING A CAREER IN THE AUTO INDUSTRY "30 and Out" Melissa A. Hardy, Lawrence Hazelrigg, and Jill Quadagno ENRICHING BUSINESS ETHICS Edited by Clarence C. Walton LABOR AND POLITICS IN THE U.S. POSTAL SERVICE Vern K. Baxter LIFE AND DEATH AT WORK Industrial Accidents as a Case of Socially Produced Error Tom Dwyer NEGRO BUSINESS AND BUSINESS EDUCATION Their Present and Prospective Development Joseph A. Pierce Introduction by John Sibley Butler THE OPERATION OF INTERNAL LABOR MARKETS Staffing Practices and Vacancy Chains Lawrence T. Pinfield SEGMENTED LABOR, FRACTURED POLITICS Labor Politics in American Life William Form WHEN STRIKES MAKE SENSE — AND WHY Lessons from Third Republic French Coal Miners Samuel Cohn A Chronological Listing of Volumes in this series appears at the back of this volume. A Continuation Order Plan is available for this series. A continuation order will bring delivery of each new volume immediately upon publication. Volumes are billed only upon actual shipment. For further information please contact the publisher.

Ending a Career in the Auto Industry "30 and Out"

Melissa A. Hardy Lawrence Hazelrigg and

Jill Quadagno Florida State University Tallahassee, Florida

'^^^ni^tijEF

Plenum Press • New York and London

Library of Congress Cataloging-in-Publication Data On file

ISBN 0-306-45336-3 © 1996 Plenum Press, New York A Division of Plenum Publishing Corporation 233 Spring Street, New York, N. Y. 10013 All rights reserved 10 9 8 7 6 5 4 3 2 1 No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording, or otherwise, without written permission from the Publisher Printed in the United States of America

Preface

During the 1980s the news media were filled with reports of soaring unemployment. Especially hard hit were the heavy manufacturing industries and a region of the country that had come to be known as "the rustbelt/' Industries once touted as the main engine of domestic economic growth—automotive, steel—had become stagnant or decrepit, seemingly at risk of being swept aside by foreign competitors. Hardly a week passed without an announcement of another plant closing or descriptions of the fallout from plants already closed. Tens of thousands of workers were being laid off, and in contrast to previous cycles of layoff these workers often had no hope of recall. Their jobs no longer existed. "Downsizing" and "restructuring" had become the new watchwords. One strategy used by firms to manage their work force reductions focused on means of increasing the attractiveness of their pension plans—in particular, their ear/y-retirement plans. Each of the "Big Three" auto makers—General Motors, Ford, and Chrysler—adopted this strategy. The often realized threat of layoff and loss of recall rights provided an obvious "negative" incentive for workers to revise their expectations of continued employment in the auto industry. But because of the seniority principle in union contracts, this pressure fell primarily on younger workers. By augmenting the positive incentives—financial and otherwise—in their earlyretirement plans, the companies (and the union, the United Auto Workers) hoped to redistribute some of the job loss across age groups. Accordingly, under certain well-defined circumstances, eligible workers were offered the opportunity of early retirement with substantially enhanced pension provisions at unusually early seniority dates. Some of the workers jumped at the opportunity. Others preferred to stay on the job, and many of these workers did stay, but some of them, worried that worse might be coming, chose against preference and elected early retirement. The situation seemed well suited to a study of the retirement process under complex conditions and varied options. The more we pursued pre-

vi

Preface

liminary investigations, the more evident it became that the train of events still unfolding in the auto industry provided a valuable opportunity to combine sociological and economic perspectives in a detailed study of factors involved in workers' decisions about the timing of retirement—decisions that for some workers entailed an abrupt, imanticipated departure from a "career job," for others a speedup of a long-planned event, and for most a heightened degree of uncertainty in the consequences of a decision not to retire despite the considerable inducements being offered. Rather than survey workers across all of the U.S. automakers, we chose to focus on the largest of the companies. General Motors, because it was still in the throes of restructuring. Despite having reorganized its production facilities and management structure during the early 1980s, GM continued to lose market share. Throughout the second half of the 1980s and well into the 1990s, GM was still closing plants and shedding droves of workers. If ever the decision to elect early retirement is made in a casual, leisurely way, this was surely not the occasion for it. Senior workers were feeling pressures from various quarters—not least of all, of course, from their junior coworkers whose jobs were on the line in both senses of that phrase. The transition to retirement has been the subject of a good deal of scrutiny since the first studies of adjustment to "old age" were conducted in the midst of the Great Depression. A number of the issues that motivated those earlier studies seemed equally salient in the present context. For example, how does the threat of unemployment influence the retirement decision of workers still in their 50s? Does the evident lack of employment opportunities for younger workers influence the decision? But the context of retirement decision making during the 1980s was also profoundly different as compared to those earlier times. For one, union-negotiated contracts in the manufacturing industries now included provisions regulating queuing behavior in a firm's internal labor market (e.g., layoff queues). For another, manufacturing workers now had a guaranteed retirement income in the form of a private pension coordinated with Social Security benefits. Seniority rights and federal legislation such as the Age Discrimination in Employment Act afforded senior workers substantial protections against an unwanted retirement, even in the midst of large and growing reductions of labor demand. Formal protections preserve options that might otherwise be withdrawn or radically amended. They do not, however, guarantee substantive rationality. Nor do they necessarily simplify the decision-making process, especially when the multiple options carry multiple, often conflicting pressures and implications. The availability of retirem^ent income has been one of the "pull" factors emphasized in numerous studies of retirement conducted during the past three decades. The pull of income security, which motivates voluntary withdrawal, is often defined in opposition to "push" factors such as job

Preface

vii

dissatisfaction and health constraints. The conceptual problem with attributing retirement to either push or pull factors is that it assumes each sort of factor is constitutionally independent of the other sort of factor. It ignores interactions between positive incentives such as a guaranteed retirement income and negative motivations stemming from the fear of losing one's job and/or from anxieties about retiring "too soon" and not being able to find another job. Further, by concentrating on motivations of retirees, the decision-making processes of those who are subject to similar constraints and incentives yet do not retire are overlooked. The retirement options GM offered its workers provided a testing ground for theoretical models of the decision-making processes. An early-retirement program had been in operation since the 1960s. But during the 1980s—and in particular during the 1987-89 GM-UAW contract, which is the temporal frame of our study—General Motors announced the availability of "special early retirement windows" for specified categories of workers. This special plan waived some and altered other of the usual eligibility criteria for early retirement. At the conclusion of the 1987-89 contract period, we interviewed more than 1,700 male auto workers, all of whom had been eligible for early retirement under the terms of GM's longstanding early-retirement plan and some of whom had also been eligible to retire under terms of the special plan. While fewer than one in five of the sampled population elected early retirement under either plan, we oversampled each of the two categories of retirees, ending with nearly equal numbers of interviews of workers who retired under the regular early-retirement plan, workers who retired under the special option, and workers who continued their GM employment beyond the end of the contract period. Thus, we were able to examine comparatively the decisions of workers faced with different options in a largely shared context of immediate and impending shrinkages of labor demand. Chapter 1 introduces the framework of issues and describes the sampled population. Chapter 2 recounts some major features of historical context, including the development of retirement programs in private industry, characteristics of the employment system, and the deteriorating conditions of the domestic auto industry during the late 1970s and 1980s. In Chapter 3 we turn to the general and technical features of the retirement plans in effect during the 1987-89 contract period, compare them to features of previous plans, and evaluate the financial consequences for auto workers who elected retirement under one or the other of the two earlyretirement plans, in comparison to the financial consequences for workers who continued to defer retirement. Chapters 4, 5, and 6 explore various facets of the retirement decision. In Chapter 4 we estimate the relative strengths of various determinants and correlates of the decision (e.g., pension wealth, health capability, marital status, skill level, plant closure) and

viii

Preface

compare outcomes between the two early-retirement plans. We also document some of the perverse consequences that arise from a strategy to accelerate the flow of early retirements as a means of dealing with excess labor supply. Chapter 5 is concerned with aspects of the workers' efforts to acquire information and advice pertaining to the retirement decision. In Chapter 6 we evaluate the extent to which issues of generational equity and altruistic intentions toward younger workers influenced the retirement decisions. Chapter 7 shifts to a consideration of postretirement characteristics and demonstrates how experiences of the retirement transition itself, as well as experiences of worklife before the transition, affected satisfaction with life in retirement. Finally, in Chapter 8 we summarize our results and discuss some of the ways in which private pensions are affected by public policy decisions. Although this study is specifically of auto workers, implications of the analyses have wider applications at a time when companies continue to cast off thousands of workers in a frenzy of mergers, acquisitions, downsizings, and restructurings. If the recent record is any indication of future trends, the decision-making processes here described for auto workers will be shared to some extent by large numbers of workers in other industries during the years ahead. As the employment relationship is increasingly individualized, the period at the end of an employment contract will ever more often say, "until further notice." On the other hand, generalizations are perforce limited by history: "Things change." Or, put less idiomatically, the process of deciding whether to elect early retirement at a given age is itself sensitive to historical context. Our auto workers are of a historical context which included an employment system that is now in decline. One difference already apparent concerns the fact that white-collar middle-management workers have recently lost much of their relative immunity to the effects of corporate downsizing and restructuring programs. In 1993, for example, middle managers accounted for 6 percent of the total work force and 22 percent of all layoffs (Marks 1994). The changing organizational technology of office work promises more to come. But middle managers are not protected by union-contract guarantees of seniority rights, income during layoff, and related benefits. Indeed, "laid off" in the white-collar world of middle management is typically just another euphemism for "fired." A parallel case study of the retirement behavior of middle-management workers in a large corporation undergoing major restructuring efforts would afford some interesting comparisons.

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ix

ACKNOWLEDGMENTS We are indebted to a number of individuals and organizations who have been especially helpful at various stages of this project. William Hoffman, Director of the Social Security Department, United Auto Workers, was an invaluable resource and collaborator in the initial stages of the project—from the construction of the sampling screens, to the formulation of interview questions, to the assembly of information about the retirement plans and the sample members' employment characteristics. A grant from the American Association of Retired Persons (AARP) Andrus Foundation supported initial stages of the research. Later stages drew on financial support provided by the Mildred and Claude Pepper Foundation. Able research assistance came from Deborah Andrews, Rachel Barich, and Kim Kruse. Portions of the text have benefited from the comm.ents of Richard Burkhauser, David Macpherson, and Joseph Quinn. Finally, the hundreds of auto workers who participated in the study: But for them and their generosity of time and understanding duringjiiterviews, this book would not be. Patches of their lives are reflected in their responses to our questions and thus in the analyses we have made of those responses. Because of the analysis techniques used, the heterogeneity of the workers' voices of experience has been transformed into the heterogeneity of population-based series of individual characteristics. Consequently, though we have written about the workers, little that was individually distinctive in their lives on the assembly line is recognizable in the text. We do, however, recognize their individual contributions, for which we are very grateful.

Contents Chapter 1 Internal Labor Markets, Plant Closings, and Retirement Introduction The Present Study Methods of Study

1 X 7 13

Chapter 2 Some Matters of Context

21

Introduction The Trend toward Early Retirement The Development of Private Pensions Collective Bargaining and Pensions Model Contracts and Pattern Bargaiiung Private Pensions as a Union Benefit Hard Times in the Auto Industry ACloser Look at GM, circa 1987 Early Retirement as a Siphon of Excess Labor

21 22 25 31 31 34 35 42 44

Chapter 3 The Financial Structure of Early-Retirement Pensions

49

Benefits and Incentives The GM Pension Plans The Early Years The 1987-89 Plan

49 54 54 56

xii Evaluating the Financial Incentives Comparing Monthly Benefits Calculating Pension Wealth Accrual Profiles Pension Characteristics of the Samples Predicting Pension Wealth Consequences of Delay

Contents 59 61 66 70 74 78 80

Chapter 4 Predicting Early Retirement Why Retire Early? A Basic Model of Early Retirement Pension Wealth and Related Variables The "Stickiness" Factor The Wage Effect and Occupational Status Other Incomes and Income Demand Health Some Background Factors Layoffs and Plant Closures Predicting Age at Retirement Regular versus Special Early Retirement Comparative Sensitivities to Pension Wealth SERP as a Contingent Avenue SERF and Age at Retirement Assessing the Basic Model

87 87 91 93 101 104 106 107 110 Ill 112 115 120 122 123 123

Chapter 5 Discussing Options in an End-Game

135

The Value of an Informed Decision Choosing Potential Informants What Advice Did the Workers Hear? Effects of Discussion on the Decision

135 138 147 151

Contents

xiii

Chapter 6 Solidarity and "Generational Equity"

163

Industrial Restructuring and Generational Conflict Young Bloods and Old-Timers Special Early Incentives Senior Workers' Attitudes Translating Attitudes into Behavior Why No Difference?

163 165 168 171 179 184

Chapter 7 Aspects of Postretirement Satisfaction

191

Satisfaction, Agency, and Autobiographical Memory Framing the Timing Problem Retiring Too Soon Status Satisfaction

191 196 199 209

Chapter 8 Inducing Early Retirement: Some Conclusions in Perspective . . . .

221

Revisiting Matters of Context Rationality as Plan and Behavior The Changing Parameters of Private Pensions

221 225 232

Appendix

229

References

255

Index

269

1 Internal Labor Markets, Plant Closings, and Retirement

INTRODUCTION A "firm"—that is, a signature (firtna), the name or title under which a company transacts business—is a legal entity organizing the complex processes by which conflicting interests and objectives of multiple, heterogeneous actors are maintained in a framework of contractual relations of exchange oriented by what the firm defines as a mutually agreed objective or output. The specific character of a firm is defined in part by an organizational technology that describes its output as a function of a structure of tasks or "jobs." This job structure is the core of a firm's internal division of labor and an internal labor market of renewable contracts. Workers flow into and out of the internal labor market via pathways established in some sort of employment system which regulates the pricing of labor time. The prevailing system of employment in the United States has traditionally been one in which firms have had great flexibility in making firmspecific adjustments in employment, that is, in altering labor supply to fit labor demand. When economic conditions are good, more workers are hired; when conditions worsen, unwanted workers are shed just as quickly. Thus, this system of employment is characterized by relatively high rates of turnover. Spells of unemployment tend to be short, but so too is the average length of job tenure. One consequence is that, with high rates of turnover, firms are more reluctant to invest very much in worker training. For a firm that requires a skilled labor force, high turnover rates are costly. An alternative system—commonly designated "closed," in contrast to the above-described "open" system—seeks to replace the flexibility of repeated cycles of "hiring and firing" with the rather different flexibility of repeated cycles of "layoff and recall."^ In effect, under the closed employment system a firm maintains an internal labor market into which workers 1

2

Chapter 1

are hired and from which workers leave, but also within which workers circulate between two statuses of "active employment"—^namely, "at work" and "laid off, but subject to recall." An obvious advantage to the firm is lower turnover, hence greater protection of the firm's training investments. To borrow Hirschman's (1970) felicitous vocabulary of analytic framework, the closed-system firm tends to substitute mechanisms of "loyalty" (i.e., worker attachment) for mechanisms of "exit" (i.e., firings, quits) as a means of regulating labor supply during the crests and troughs of the firm's "business cycle." One of those mechanisms of loyalty involves the notion of a "career job": a new employee is brought into the internal labor market with the twin understandings that circulations between "at work" and "laid off" will be more or less frequent but that a loyal employee can look forward to long-tenure employment in the firm (though this latter part of the agreement is implicit). Any worker on layoff (or "at work," for that matter) has the option of exit (quitting) for another, presumably better employment opportunity. However, the expectation of long-term employment with the current firm serves as a major part of the glue of employee loyalty—especially when, and insofar as, the given employment entails firm-specific training.2 Another part of the glue stems from a difference in reward structures. In the open-employment system worker productivity is treated as a given. The firm's aim is to match a wage to a given worker's evaluated marginal productivity; if both buyer and seller of the labor time agree to the offered match, the worker is hired or not fired; if not, the offer goes to the next candidate. By contrast, in the closed system productivity is treated as a variable that can be influenced by the wage relation; thus, the wagerate schedule of rewards emphasizes incentives designed to increase worker effort, ability, and, in the process, loyalty. Firms that use the "layoffrecall" scheme thus tend to pay somewhat higher wage rates, as an incentive to gain more effort and as an incentive to maintain loyalty in the face of periodic layoffs. The closed-system internal labor market poses some regulation problems of its own, and it is here that unionism—or a specific form known as "job-control unionism"—has been especially instrumental (and here also that the third of Hirschman's triadic framework, "voice," comes most into play). The internal labor market is typically characterized by a highly formalized, detailed contract which relates a ladder of sharply delineated jobs, task descriptions, and expectations, on the one hand, to workers' rights, obligations, and wage rates, on the other (the "job classification system"). The union controls the career ladder and career-income schedules through a set of seniority rules, which also govern the allocation of internal vacancies to candidates for promotion and the allocation of layoffs when the firm's management declares a need for layoffs. The rule of seniority essentially establishes an intertemporal "loyalty contract" in which agree-

Internal Labor Markets, Plant Closings, and Retirement

3

ments are made between past and future conditions. Thus, in the choice of layoff cycles over reduced earnings through reduced hours or reduced wage rates as a means of regulating fluctuating labor demand, senior workers have preferred to deflect the main cost of that regulative procedure to junior workers, while junior workers have been willing to accept the disproportionate cost in return for future compensations (or, if not, they exit the internal labor market). This job-control unionism retained some major elements of the tradition of "union voluntarism," as it was known in the days of Samuel Gompers (or "business unionism," in its later description), insofar as conventionally (i.e., narrowly) defined "economic interests of the workplace"—contract bargaining, short-term cooperative interests, industrial action at the plant, and so forth—continued to be emphasized in preference to more broadly defined interests of political-econom.ic reform.^ But job-control unionism more deeply engaged management's interests in molding and executing strategies for the regulation of labor supply, including the use of "no strike" provisions and the union's commitment to discipline rank-and-file initiatives. The U.S. auto industry, including both the manufacturing firms and the auto workers' union (the UAW),^ was prominent in developments of the closed employment system—as indeed it has been prominent in many other developments during this century. Ogburn's (1947, p. 4) testimonial 50 years ago may now seem quaint for his choice of comparatives, but not for the underlying point: "There is reason to remark that the inventors of the automobile have had more influence than Caesar, Napoleon, and Ghengis Khan." This impact has been due not just to the automotive vehicle as a physical device, with all of its manifold repercussions, difficult to exaggerate though they may be. In addition, the organizational technology of the vehicle's production—the assembly line and all that it has involved in the parceling of work tasks across an abstract grid of "time and motion," but equally importantly as an innovative corporate form of organizing the multiple relationships of employment—has had profound, if sometimes less visible, consequences for the textures of work experience during the second half of the 20th century. One auto maker in particular, not Ford but General Motors, had by the end of World War II established itself as the leading model of this new corporate form, a multidivisional organization that emphasized decentralized administration of semiautonomous units under a single overall coordination. GM became the setting of several wellknown studies of innovation in organizational technology (e.g., Drucker 1946; Chandler 1962). GM's plants also became the setting of several wellknown studies of blue-collar work life and labor-management relations— among them. Walker and Guest's (1952) study of GM's Framingham, Massachusetts, plant, then the most modern of all assembly line plants; Chinoy's (1955) study of GM's Oldsmobile plant in Lansing, Michigan (also the set-

4

Chapter 1

ting of Form 1973); and Rothschild's (1974) study of GM's Lordstown, Ohio, plant. And GM's political-economic clout became world renowned, not least because of an oft-quoted (and slightly misquoted) remark miade in Congressional testimony by Charles E. Wilson, long-time head of General Motors and, at the time of the testimony, Secretary-Designate to the Department of Defense in the first Eisenhower Administration: "What is good for General Motors is good for the country. "^ Shortly after the end of World War II, GM and the UAW completed a series of contract negotiations that rapidly developed the organizational form of the closed employment system. Details of those developments will be described in the next chapter; for the moment it suffices to say that most of the innovations were keyed to expectations of worker loyalty (from management's point of view) and to expectations of job security (from the union's point of view) in regulating the internal labor market. From today's vantage it might seem odd that a major firm in an industry in which most blue-collar employees were semiskilled at best would have had much of a stake in absorbing the costs of implicit long-tenure contracts, since the main advantage of such contracts from the firm's standpoint is in protecting investments in worker training. But two factors were important. First, the automotive industry had a long record of "boom and bust" cycles (given the price of the commodity relative to disposable income, consumption of the industry's product was extremely sensitive to interest rates, money supply, etc.), and those cycles could be expected to continue in the consumer-driven economy. So having a "warehouse" in which to store temporarily surplus labor during downturns was an attractive option—especially in view of the second factor, which has to do with worker training. Semiskilled though they were by today's standards, proficient assembly line workers ("production workers," as they are known in the industry language) were not readily available "off the street. "^ The required skills did involve some investment in training, in the conventional sense of occupational-skill training. But at least equally important were the socialbehavioral skills demanded by the organizational technology of the labor process: clock punctuality and spatial coordination across atomistic task performances, subordination to the physicalist logic of the machine system, and so on. A behavioral regimen taken for granted today was still alien to most of the rural migrants flocking to the industrial cities and filling factory rosters.'' This aspect of "training to the job" involved considerable investment from the firm's point of view. For an industry eyeing the prospects of rapid growth in consumer demand for a product with built-in "style obsolescence," having a labor force that could respond flexibly to the ups and downs of product demand represented a significant advantage. For the workers, on the other hand, that flexibility meant that, despite the comparatively high wage-rates which the industry paid, part-year work

Internal Labor Markets, Plant Closings, and Retirement

5

was rather frequent (more or less, depending on the state of the economy), and annual incomes were therefore often much lower than the high wagerates otherwise implied. At least since the mid-1930s unionized workers had been lobbying for a guaranteed annual income, but to no avail (see, e.g.. Fine 1969, pp. 60-61). During the quarter-century following World War II, manufacturing workers in general, and none more than auto workers, learned to appreciate regular increases in wage rates, in standard of living, and in the influence of their unions. Lacking enough of a cultural-historical perspective, they thought their relatively prosperous situation would last forever, or at least throughout any foreseeable future. The unusual conjuncture in geopolitical-economic relations which had put the United States in such an overwhelmingly dominant position in world markets of capital, and thus of wage labor, was just that—a highly unusual historical conjuncture. But for the large majority of people who were living the heady experience of world dominance from within the center, it increasingly seemed a natural state of affairs, an endlessly secure unrolling of "the American dream" (if only "external enemies" could be held at bay). That this internal prosperity was heavily subsidized—^by a geopolitical-economic dominance that ensured cheap energy supplies, external sources of cheap "raw materials," and abundant still undeveloped consumption markets for the steadily expanding production of goods and services—was an unwelcome message even when offered by "friendly critics," and more especially unwelcome when the support structure began to fray. Although the process of fraying was much too complex to be adequately understood in terms of any single event, and certainly began long before 1973, the "oil shocks" of the 1970s are by now a standard emblem of the profound structural changes that pulsated, sometimes violently, throughout the fabric of work life in a large segment of the U.S. population. And if the "oil shocks" became emblematic of the "causes" of those changes, the plight of "the manufacturing industries" (long regarded as the essence of "industry," the very meaning of the word), and of the plight of the automotive industry in particular, became the most visible emblem of the consequences. Where once most adults understood and accepted the central meaning of Charles Wilson's famed boast, they now were forced to make sense of iconic "brand name" industrial firms shedding tens of thousands of high-wage jobs in the United States and exporting labor demand to new plants in low-wage countries. By the 1980s the auto industry felt under siege on every quarter, now most immediately by the worst economic recession in decades. Industry troubles prompted the formation at MIT of an "international automobile program" of inquiry into the future of the industry (Altshuler, Anderson, Jones, Roos, and Womack 1984). Concerns about the survival of the auto industry in the United States were partly motivated by a recognition that

6

Chapter 1

motor-vehicle-related occupations directly accounted for 1 of every 11 members of the U.S. labor force: 1.2 percent in automotive manufacturing; 2.8 percent in sales and service; 1.0 percent in highway construction and maintenance; 4.1 percent in operating vehicles for commercial freight and passenger haulage (Altshuler et al. 1984, p. 7). And indirectly many other areas of the economy felt repercussions, since the auto industry accounted for more than half of the rubber and malleable iron, nearly half of the machine tools, and large portions of other industrial materials consumed each year in the United States. Alarms about the fate of this one industry were often indistinguishable from concerns about the fate of the U.S. economy in general. Auto makers' responses to their individual and collective predicaments were varied, though most of the responses have been popularly collated under the barely euphemistic phrase, "industry restructuring and downsizing." One response was to renew and expand experiments in "employee involvement" programs (also called "Quality of Work Life" programs), a newly furnished variant of a quasifamilialist corporativism designed at one level to maintain worker loyalty in the face of hard times but at another level to construe "industrial relations" in a way that would obscure the basic structural conflict between buyers and sellers of labor time by securing the conviction that all interests were fundamentally the same.^ Other responses, which formed the immediate and painful context of that renewed mission, involved the permanent closure of many plants, cutbacks and retoolings of other plants, assignments of labor demand to relatively low-wage countries, and excisions of large numbers of "excess workers" in the United States. Several of these responses will be taken up again in the next chapter. Here, for introductory purposes, we focus on one specific form of the auto makers' means of reducing the population size of their internal labor markets—namely, accelerating the flow of retirements. By the end of the 1950s, the auto industry boasted one of the most strongly attached labor forces of any industrial sector. The line between the traditional blue-collar orientation to occupational activity as "just a job" and the traditional white-collar emphasis on "career" had been blurred at least to the extent that large numbers of semiskilled and skilled workers had developed strong loyalties to an industry, and to specific firms within it, that seemed to promise careerlike ladders of advancement in a lifetime employment. Often the promise went unfulfilled, as Chinoy (1955) documented in his famous study. Automobile Workers and the American Dream. Nevertheless, the loyalty remained strong among auto workers who had gained some tenure in the employment system, in part because of comparatively high wage-rates and in part because an increasingly significant portion of their wages took the form of deferred compensation—a retirement wage and related retirement benefits. But what was once appreciated as a major asset of the industry—strong employee loyalty—had, by the 1980s,

Internal Labor Markets, Plant Closings, and Retirement

7

been transformed into something of a liability, at least in the view from company headquarters. The need to shed large numbers of strongly attached workers was complicated by the fact that this employee "stickiness" had been deeply institutionalized in the rule of seniority, one of the linchpins of the hard-won accommodation between management and unionized labor. Insofar as the reductions of labor supply were regulated strictly by seniority, the result would be an abrupt aging of the work force. Thus, from a standpoint largely shared (though for different reasons) by management and union leadership, senior workers who had reached eligibility age for early retirement were seen to be an obvious pool of candidates for removal from the internal labor market. Both management and union shared an interest in future auto workers, and younger workers had greater claim on that future than did older workers. The task, then, was to redistribute risk and opportunity—the risk of job loss, the opportunity for future job security—across age groups in a way that would implicitly contradict the "last in, first out" rule of seniority, without abrogating the basic principle of a seniority-regulated internal labor market. A "command" approach to the desired goal was out of the question, for reasons of legal contract (and behind that, management's interest in maintaining the union's cooperation). Achieving the desired goal would have to depend upon the right mix of incentives, incentives designed to decrease the exit costs for senior workers whose demand for the exit option was elastic. Since the 1960s, contract settlements between the UAW and the Big Three auto makers had included a lucrative package of benefits for workers who retired "early," that is, before the "normal" age of 65. Indeed, this early retirement plan, initiated in an agreement between the UAW and GM, was and continued to be one of the best in any industry Successful though it had been in "ordinary times," the package of incentives was not producing the desired volume of exits during the 1980s, when plants were being shuttered and tens of thousands of younger workers were heading the queue into permanent layoff. Additional incentives, targeted on senior workers in specific plants, would perhaps sufficiently augment the outflow of workers who could be expected to leave through the ordinary earlyretirement channel. THE PRESENT STUDY The immediate context of the present study began November 6,1986, when General Motors armounced that nine of its plants would be closed entirely, another two partially, by 1990, with most of the closures scheduled to be completed before the end of 1987.^ That dating of the context is in some respects a convenience, since these 11 plants were not the first of GM's closures; auto workers had seen or heard about such announcements

8

Chapter 1

before, and no doubt imagined that more would be coming, perhaps in their own neighborhood. But that is not to say that the workers had grown accustomed to the news, drawn up their separate bargains with fate, or suffered the burdens of job displacement any less for having the knowledge that others elsewhere had already gone through the experience. The workers directly affected by the closures announced on November 6, estimated at 29,000, did have several months in which to decide alternative courses of action. And senior workers usually had more latitude than their younger co-workers, since the typical practice in plant shutdowns was to cease operations in stages, during which time workers were "bumped" into layoff status according to seniority. But the several months were a period of uncertainties, anxieties, and animosities for most workers, young or old. As a result of previous negotiations with the union, GM agreed to offer a special package of incentives designed to reduce exit costs via early retirement for qualified workers as young as age 50 who were directly affected by plant closures. Officially termied the Special Early Retirement Plan (as distinguished from the long-standing Regular Early Retirement Plan), the package can be viewed as a test of management's ability to predict the relative proportions of "alert" and "inert" responses to alternative incentive structures (Hirschman 1970, pp. 24-25). At some point on a gradient of possible incentives, senior workers' elastic demand for the exit option would be sufficiently matched, from management's standpoint. The question was. Where that point? The chief "positive" incentive consisted in an offer of enhanced financial benefits to qualified senior workers who had not otherwise signaled interest in an early exit. Perhaps equally importantly, all of the positive incentives of the Special Plan were framed—and, one would expect, reinforced—^by the "negative" incentives of extended layoff, the uncertainties of recall or transfer to another, perhaps distant plant, social pressures (real and/or perceived) of expectation from junior co-workers who were first to bear the brunt, and appeals to worker solidarity in "sharing the burden." Did this Special Plan include the right mix of incentives? The brief answer is "No," inasmuch as management's hopes were not satisfied. For example, whereas GM's goal for 1988 had been to induce 7,500 early retirements by means of the Special Plan, only 3,600 workers actually did so. Similar ratios occurred the following years as well. But although management's goal was never met, large numbers of senior workers did respond "alertly" to the special package of incentives. And at the same time, many other senior workers elected an early end to their careers in the GM plants by taking the long-standing avenue of Regular Early Retirement, perhaps at least partly because of the pressures and uncertainties associated with the plant closures announced in November 1986. Our aim is to investigate within that context a variety of determinants of the early-retirement decision, using data generated from interviews with

Internal Labor Markets, Plant Closings, and Retirement

9

representative samples of auto workers who elected early retirement during the 1987-89 contract period and auto workers who were eligible to do so but declined. The basic question of our investigation is straightforward: What factors distinguished those workers who did retire from those who did not? An important dimension of that question consists in the structure of incentives in each of the early-retirement plans: Under what conditions did the incentives achieve the intended effect? It should be clear that the latter question is only a component of the former question. Hirschman's contrast between "alert" and "inert" responses to proffered incentives is useful, in that respect, for underlining the simple fact that an "incentive" is only as good as the intended recipient's evaluative perceptions of self-interest, options, and probable consequences of alternative courses of action within a trajectory of life events. Not that the general category of an alert response (i.e., "to retire") was exceptional for the population of senior auto workers; we can safely assume that virtually all of them hoped to end their GM careers by means of retirement. Nor that any of the workers were inert, in the sense of being oblivious to the various retirement schemes on offer; we can safely assume that the drama of an industry in serious trouble had caught the attention of all, giving the issue of alternative exit mechanisms more than usual salience. Rather, the degree to which any given worker was "moved" by the incentives of an early-retirement plan depended at least to some extent on a disposition to be moved—that is, on a readiness to retire now—and that disposition was no doubt a function of numerous factors, some of which had little or perhaps even nothing to do with the motivational field addressed by the incentives. Thus, our effort to assess the effectiveness of the incentives to retire, intended to alleviate some of the problem of redundancy in the firm's internal labor market, will turn on our ability first to grasp those individual dispositions and their conditions. We have at our disposal not only the data generated from interviews of the sampled population but also a quite substantial body of research literature—or rather, bodies of literature, for the present investigation stands at the intersection of three distinctive research topics and settings: the auto worker, plant closings, and retirement. We draw on all three bodies of previous research (and occasionally some others as well) in subsequent chapters. Here, because the collective volume of those literatures precludes anything like a systematic review, we offer some brief orientational descriptions. There have been many studies—some once widely heralded—of the behaviors, attitudes, and aspirations of workers in the automotive industry Prominent examples of the early research include Walker and Guest's (1952; Guest 1954) study of a newly opened plant in Framingham, Massachusetts, Chinoy's (1955) study of auto workers in a Michigan plant in 1946-47, and Kornhauser's (1956) study of auto workers' political attitudes

10

Chapter 1

and behaviors. Why auto workers? An important part of the answer was captured by Chinoy's (1955, p. 12) observation that they "work in a glamorous, [then] relatively new industry whose growth has dramatized the American tradition of opportunity, but whose present character makes it extremely difficult for them to realize the American dream." Rare today, no doubt, a depiction of the auto industry as "glamorous." But for half a century or more, no other image better symbolized the mass-production technologies of a consumption-driven economic order of style and prestige than did the image of "Detroit's latest models" rolling off the assembly line. Moreover, few other corporations have carried as much weight in the political economy of a nation as the major auto makers—especially General Motors, long regarded as the bellwether of Wall Street's impending future. The industry has been repeatedly approached as a quasi-laboratory for the investigation of various structural changes and trends (e.g., in ideologies of human management and workplace authority) for the simple reason that it has often been a pacesetter in those changes and trends. And increasingly throughout the quarter-century from 1948, auto workers were viewed as leading examples of the unprecedented growth of a "blue-collar middleclass prosperity." Once a leading figure in the drama of strikes and unionization, the auto worker of the 1950s and 1960s was more often featured as a personification of exchanges between "the good life" and "the alienated life" (e.g., Chinoy 1955; Blauner 1964; Form 1973). Likewise, studies of "plant closings, community abandonment, and the dismantling of basic industry"—to borrow the descriptive subtitle of Bluestone and Harrison's (1982) landmark treatment—have dealt with dramatic events and with the disparities that stand between expectation and realization. Ranging from Wilcock and Franke's (1953) survey to Aiken, Ferman, and Sheppard's (1968) study of workers displaced by the demise of Packard Motor Car in 1956, to Lipsky (1979), Aronson and McKersie (1980), Buss and Redburn (1983), Craypo and Davisson (1983), Newman (1985), Rothstein (1986), Perrucci, Perrucci, Targ, and Targ (1988), and Dudley (1994), this line of research has produced a second and partially parallel fund of insights based primarily on case studies of specific sites. Several of these sites have been auto plants and their surrounding communities. But even where not, the garnered insights generally apply to a broad range of industrial plants, since plant closures tend to share a number of important features in terms of legal issues (e.g., Rothstein 1986; Wendling 1984), economic, political, and social ramifications for the host community as well as for the displaced workers themselves (e.g., Dudley 1994; Flaim and Seghal 1985; Podgursky and Swain 1987), and psychological health effects among the workers and their families (e.g., Hamilton, Broman, Hoffman, and Renner 1990). Because of the concentrated volume of closures during the late 1970s and the 1980s, the imagery of abandoned industrial plants often

Internal Labor Markets, Plant Closings, and Retirement

11

served as a catalyst for a sort of "national ritual/' as Dudley (1994) put it, ritualized talk about deep structural changes in the nation's economy. Caught up in those changes and in the anxieties and conflicts being laid bare, men and women whose workplaces had been shuttered behind them voiced some biting critiques of the current state and prospects of "American industry," even if those critiques were sometimes heavily tinged with nostalgia for an era long gone (e.g.. Hamper 1991; Newman 1985). Studies of retirement, though of more recent vintage, have been commanding greater shares of the page space of social science research, as various aspects of population aging have moved to the fore in some of the discourse of public policy. But save for a very few relevant observations—for example, that age is one of the strongest predictors of the likelihood of reemployment among workers displaced by a plant closing (e.g., Aiken et al. 1968, p. 31; Wilcock and Franke 1953, p. 57)—studies of auto workers and plant closures have been mostly silent about retirement as a form of labor-force mobility and more particularly as a form of managing labor-force capacity within an industry. There is one large exception to that generalization, of course—the vanguard study of early retirement among auto workers by Barfield and Morgan (1970). The present research was designed in part as a replication and extension of Barfield and Morgan's investigation, though obviously in a quite different historical context. Their study, based partly on a sample of the general adult population of the United States and partly on a sample of auto workers during the mid-1960s, addressed a range of potential determinants of the early-retirement decision and subsequent attitudes toward the decision—for instance, age, marital status and household size, education, financial considerations, ability to keep up with the job, recommendations by co-workers and union or management officials, and so on. These are the main aspects of their study that we have sought to replicate and extend (Chapters 4,5, and 7). In addition, however, we examine (Chapter 6) another set of issues in connection with early retirement as an avenue of mobility out of the firm and industry—namely, issues concerning the distribution of unemployment risk or, conversely, employment opportunity across age groups. Barfield and Morgan's study was conducted during what were still halcyon days for the U.S. auto industry. The decision of a worker to elect early retirement, or not, had few if any negative implications for the continued employment of younger workers in a given plant or firm—or, so far as anyone then imagined, for later generations of younger workers as well. Times were different during the latter half of the 1980s, when the interviews that comprise the main data base for this study were conducted. On the one hand, the implications of early retirement for future generations of workers had become a prominent topic of public policy debates. Issues involved in the problem of how opportunity and risk, at collective as

12

Chapter 1

well as at individual levels, are and ought to be distributed into unknown (future), relative to known (present), conditions and capacities—issues sometimes gathered under the heading "generational equity"—were producing much heat along with some new insights and new research agendas. Various observers were noting, as did Brudney and Scott (1987, p. 20), som^ething "paradoxical" in the fact that while "institutionalized policies and pressures have encouraged older Americans to retire at ever-earlier ages,... now older Americans are being accused of knocking off work and enjoying a high standard of living at the [present and future] taxpayer's expense." On the other hand, the auto industry, highly prone to "boom and bust" cycles since 1919, had long used retirement (first, mandatory retirement; then early retirement) as a means of rejuvenating its blue-collar work force. When those halcyon days that were the historical context of Barfield and Morgan's study ended, as they had well before our study, the industry's effort to shed unwanted workers by expanding opportunities and incentives for early retirement were augmented by expectations—voiced by younger workers in the pages of Solidarity, the UAW's official newspaper, and elsewhere—that senior workers ought to retire early for the good of the current generation of younger workers. Thus, a question we address in addition to those shared with the Barfield-Morgan study asks whether workers retired early because they agreed with and were motivated by the sort of redistributive ethic featured in those expectations—that is, an ethic of redistributing the risk of indefinite layoff or permanent job loss among younger workers by converting some portion of it into early retirement among workers in their 50s. Did older workers' agreement or disagreement with that ethic, or with specific components of it, make any difference in the likelihood of their retiring early? As a working hypothesis, the question admits varying expectations about the effect of agreement. For example, did agreement increase the likelihood of retirement in contradiction of "self-interest" factors such as the size of the expected retirement wage? Did agreement modify the efficacy of one or another of those self-interest factors and thereby increase the likelihood of retirement? Or was agreement consequential only in the margin, discriminating probabilities of retirement only when self-interest considerations had been satisfied? We would not expect to see systematic evidence in support of the first of those three alternatives (nor, it would seem, did company management; otherwise they would not have expanded "self-interest" incentives). But the second alternative is plausible relative to the third. It is certainly easy to imagine that a great many junior workers had hoped, and had expressed their hopes in shop floor talk, that they could count on a climate of worker solidarity and "social acceptance" in which early retirement would be viewed as "the right thing to do" (see Frolich and Oppenheimer 1992).

Internal Labor Markets, Plant Closings, and Retirement

13

METHODS OF STUDY The event of central interest is defined as a completed decision to elect early retirement under the terms of one of the early-retirement plans that were part of the 1987-89 contract between General Motors and the United Auto Workers. The temporal frame of that event is the 3-year contract period, which began in October 1987. During that contract period General Motors announced the opening of a "special early-retirement window," effective from November 1987 through March 1988. The significance of that "window," briefly depicted in the preceding discussion, will be described in some detail in the following chapters; for the moment it suffices to repeat that certain workers in specific GM plants—plants scheduled for closure or sharp reduction—^were offered an opportunity to elect early retirement under a special plan which included some enhanced incentives, financial and otherwise. During that same interval, workers who satisfied minimum eligibility requirements, whether directly affected by plant closures or not, could also elect early retirement under provisions of the Regular Plan. Our interest is in both groups of retirees and in the relevant "at risk" population of auto workers who continued to defer retirement to some unspecified future date. The sampled population consisted of all male workers who were employed in GM's plants as production or skilled-trades workers as of October 1987, who were aged 50 or older as of October 1987, and who were eligible for early retirement under the terms of at least one of the early-retirement plans.io This population was stratified into workers who were still employed in GM's plants at the end of the contract period and workers who had elected early retirement under either of the early-retirement plans during the 3-year interval, 1987-89. Probability samples were constructed within each of the population strata, ii Individual sample members were initially contacted by mail, with an explanation of the study and a request for cooperation. Interviews were conducted by telephone between November 1989 and January 1990. The defining characteristics of the sampled population imply some obvious limits on the extent to which results of the analysis of retirement decisions can be generalized. First of all, the population is male, blue-collar, and of relatively long tenure in a major mass-production manufacturing industry. Most of the men were or had been employed in various types of production plants (assembly, trim, foundry, etc.) located in central-city or suburban places in the old "industrial heartland" (Michigan, Ohio, Indiana, Illinois, Missouri).^^ The age, gender, and ethnic composition of employees in industrial plants tends to vary across different plant locations (i.e., rural, suburban, central-city), across different regions of the nation, and across different types of plant (see, e.g., MacLennan 1985).

14

Chapter 1

Moreover, the fact that this is a study of retirement decisions over a short span of time during the late 1980s implies some restriction of the intersection between cohort biographies and historical periods. The average age of the men at date of interview was 57 (see Table A.l for other descriptive statistics). The large majority ranged between 53 and 61 years of age, which means that most of the men (1) were born either just before or during the Great Depression, (2) were too young to have served in World War II, though some of them probably served in the Korean War, and (3) began their paid-employment work lives (though not necessarily with GM) during the 1950s. This last trait means that most of the men entered the labor force when the union movement was at or near its apogee. The UAW in particular was then in the process of consolidating its organizational leadership at the national level, reining in the energies of rank-and-file militancy, and achieving a certain sort of accommodation with management. It was a time of "labor peace," to use one popular expression of the day, and of "consumer-oriented normalcy," to use another apt phrase. Flint, Michigan, which had been the site of so many overt contests during the preceding years and decades, was lauded by Look magazine as an "All-American City" in 1954 (Edsforth 1987, p. 218). Auto workers were being socialized in the politics of a corporate-style "union voice" as a means of resolving (or at least addressing) disputes between labor and management (see Edsforth 1987, pp. 200-219; Freeman 1989, pp. 169-196; Zetka 1995; Zieger 1986). That period of relative comity extended well into the 1960s, when the youngest members of our sampled population were beginning their employments with GM. If measured in terms of wage-rate gains and fringe benefits, the two decades were a promising time for blue-collar careers in the auto industry—assuming, of course, one could withstand the often punishing work assignments. That last observation points to another, very important caveat about the limits of generalization: the sampled population consists of survivors. That is to say, our analysis of retirement decisions pertains only to male auto workers who successfully fought against the physical and mental challenges of working in the plants long enough to have reached eligibility for early retirement. Many other men of the same birth cohorts (though how many others we do not know) worked alongside the members of our sampled population at one time or another—6, 8, perhaps even 10 or more years—and then left for employment elsewhere. Some of these latter men (again, the number is unknown), also in their mid-to-late 50s in 1989, could have been in employments where they, too, had opportunities of early retirement, perhaps under similar plans. In any case, we have no information specific to the "nonsurviving" erstwhile members of that larger population of men born October 1937 or after who were at one time or another, for one tenure length or another, employed in a GM plant. Our study necessarily pertains only to the survivors.

Internal Labor Markets, Plant Closings, and Retirement

15

Our analyses are guided in part by a theoretical perspective which can be described as a "rational-action" perspective. While that label, or some variant of it, has attained considerable prominence in recent decades by becoming attached to more or less distinctive, sometimes controversial groups of theory, we intend nothing special by it. In fact, the implicit (whea not explicit) point of departure of most social science theory has always been built around some version of a rational-action model of human behavior. Informed by the sort of egocentric bias that renders experience of "the world as it is from my point of view" (which in turn is situated within and dependent upon an "ethnocentric" or cultural-structural bias), this very general, highly abstract model assumes as central tendancy that human beings live their lives as consciously, sometimes self-reflexively deliberative beings engaged in subjectively meaningful, purposive behaviors (to use a vocabulary that has come to be stylized as "Weberian"). The deliberations tend to be episodic; yet an actor can usually supply a reasoned account of what he or she is doing at any given moment, how it fits within a biography, and why that rather than some other action is being undertaken. The deliberations tend to be consequentialist, in the sense that alternative actions tend to be sorted and weighed in terms of anticipated consequences; yet the sorting and weighing are obviously not the cerebrations of an omniscient, omnipotent, rational-calculating machine. Actions do often go wrong—perhaps more often than not, if measurement is precise enough and effects are traced far enough—although the degree to which they go wrong is not always very noticeable or important. Actions do produce consequences that the actor had not foreseen, and often could not have foreseen, much less intended. Yet actors frequently do decide among alternative actions or courses of action; these decisions usually matter, sometimes exiguously but other times in ways that far exceed the actor's perceptual horizon; and the decisions tend to be calculative, however imperfectly, in terms of expectable or anticipated consequences, on the basis of information and options at hand. Of course, to say that this general rational-action model is highly abstract is to acknowledge that it accommodates a great deal of variation on factors which are not describable, easily or at all, along a rational-irrational dimension. As numerous observers have insisted—including observers who have placed considerable weight on this very general rational-action model even as they have otherwise diverged just as considerably (e.g., Adam Smith, Karl Marx, Max Weber, Georg Simmel)—decisions and actions taken are often as much or more a function of forces of habit and sentiment than of the reasonings which are typically depicted as acts of rational calculation. Habits and sentiments as well as reasonings, and their consequences, are selectively institutionalized as reproducible and reproductive (not to say static) organization, which itself manifests a kind of rationality ("rationality as form") that need not be isomorphic with the ratio-

16

Chapter 1

nality of any given deliberative actor. Yet this reproductivity of organization—the tendency of an organization to persist—^not only creates but indeed is a particular selection and distribution of knowledges (or "informations"), options, incentives/disincentives, and so on, within which actors' deliberations, decisions, and actions exist as ranges of possibility arid probability, potentiality and actuality, anticipation and remembrance. To some considerable extent, in fact, that reproductivity is coercive in the very same instance that it is productive; it makes some of the decisions or choices "for" actors, as it were, often without their awareness. Thus, while our data analyses will draw upon some very specific, highly developed theoretical approaches within the general rational-action perspective—collectively referred to as utility theory or rational-choice theory—it will be at least as often the shortcomings as the main strengths of those approaches that provide orientation. Standard utility theory has been remarkably productive in generating a framework within which the dynamics of a variety of decisional problems can be rigorously studied. Indeed, as Plott (1987, p. 117) suggested, it has been one of the most productive of any "obviously false" theory yet devised. Given the complexity that each of us imagines herself or himself to be, the fact that a very simple algorithm, composed of a small handful of variables, performs as well as it does in a variety of contexts could be regarded as astonishing. ^^ x^g performance is of course always an approximation relative to the complexity of particular experience—a necessary cost of the parsimony. But in various model situations, where the options are well defined (as judged by the players, not just the theorist-observer), where the relevant information is reasonably accessible and unambiguous (again, as judged by the players), and where the players manifest socialization biographies that imply reasonably predictable understandings or prejudgments of the rules of the game, the approximate results of data analyses demonstrate that people do often tend to behave as, or as if they were, utility maximizers. However, just as approximations come in degrees, so do the various attributes of model situations. To list a few examples: (1) The range of what might count as a "utility" or "good" to be maximized allows much greater diversity than the typical model situations are capable of handling (e.g., not only nonquantifiables, in the sense of present limits of mensural technology, but also substantive rationalities that are by definition obscure in dynamics). Likewise, (2) actors' evaluations of information concerning options, constraints, risks, and other components of a decision dynamic are contextdependent, and often highly sensitive in that dependence, yet the typical model situations involve a rather narrow range of (often highly stylized) decisional contexts, such as gambling or lottery behaviors in an experimental setting. (3) Standard models assume that judgments about utility and judgments about event probabilities are independent; this important

Internal Labor Markets, Plant Closings, and Retirement

17

simplifying assumption allows reasonable approximations in some contexts, but in many others it is profoundly mistaken. And (4) standard models assume that actors experience uncertainties (of information, of constraints, of outcomes, etc.) in very well-formed ways, yet even in rather simple conditions uncertainties are often ambiguous or fuzzy, so much so that they do not conform to the sort of single first-order probability distributions that the concept of risk assessment implies.i^ In sum, when "the very ideal conditions" of the standard model situation "cease to hold"—to borrow Arrow's (1987, p. 201) locution—"the rationality assumptions become strained and possibly even self-contradictory. They certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation/' Rationality is always contingent on a context of meanings; thus, "rational action," strictly speaking, is never a founding action. Obviously the rather broad rational-action perspective which we use as partial guide in the analyses of auto workers' decisions, being highly abstract, is empirically incomplete. The more closely one approximates the quotidian elements of the conditions and experiences of any given actor, the more that incompleteness is telling of the inability of a rational-action model to make sense of specific outcomes. We have already alluded to some of the constraints on options that formed part of the organizational setting within which the auto workers' deliberations and outcomes had the meanings they did have. We will consider some of those constraints at greater length and in greater detail in later chapters. But it should be evident that, for most of the analyses we undertake, those organizational circumstances must be treated as givens, not as variables, since our study deals with employees of one firm at one juncture in the firm's (and industry's) history. 1^ By the same token, in referring as we just did to the meanings of the workers' decisions, we are acknowledging a fabric of sentiments, habits, motivations, deliberations, and intentions that is empirically far richer than the threads of our data. We simply do not know all of the contents of the workers' meanings, nor can we assume that those meanings, if known sufficiently, could be ordered along a grand scale of commensurability. In moving toward a decision whether to retire "now" or "later," for example, the workers may well have been deliberating over conditions and prospects of event that varied markedly from person to person in substantive meaning—that is, deliberating not simply about different quantities on a grand scale of value ("the value of retiring now rather than later") but indeed about various and at least partly incommensurable values which they had to orchestrate in some fashion when deciding whether to retire "now, under these conditions and prospects," or "later, under (hoped for) better conditions and prospects."^^ As previously noted, we do not subscribe to the erstwhile standard assumption of decision the-

18

Chapter 1

ory that actors' "preferences" or value assignments are independent of their substantive beliefs. Nor do we find troubling an insight which has upset previously contented assumptions about tight linkages between valuation and choice behaviors—^namely, that the cognitive-evaluative processes involved in actors' assignments of value to alternative goods differ in importantly consequential ways from the cognitive-evaluative processes involved in making choices among the alternative goods. ^^ Although the data we analyze do not allow direct access to the processual dynamics of either sort of behavior, our interpretive inferences are based on the assumption that value assignment (or "preference") and choice are loosely coupled.

NOTES 1. Bear in mind that the polar terms, ''open" and "closed/' simply pertain to analytic models which have variable "descriptive adequacy" in relation to the employment practices of any particular firm. For more detailed recent treatments of employment systems, see Kochan, Katz, and McKersie (1986), Hounshell (1984), Katz (1985), Althauser (1989), Weiler (1990), Sayer and Walker (1992), Bridges and Villemez (1994), and Pinfield (1995). 2. Indeed, although the expectation has typically been founded on only an implicit understanding, recent court rulings have held that employers' signals of that implicit understanding, such as occur in employee handbooks or other official documents which serve to build employee loyalty, are legally enforceable implicit contracts (see Edwards 1993; Kochan, Katz, and McKersie 1986; Rosen 1994; Weiler 1990). 3. The policy of the American Federation of Labor stressed the importance of maintaining a careful distance toward political parties, the periodic contest for control of the state bureaucracy and its rewards, and any organized movement that was identified itself as (or was identified with) a class-based politics. Gompers' "voluntarism" notoriously included opposition to specific reforms proposed by and/or supported by the national government, including legislation concerning minimum wages, maximum hours of work, and old-age pensions (see Gompers 1914 and 1915; also, Hattam 1993; Horowitz 1978; Rogin 1962; Yellowitz 1965). 4. The UAW's official name is "The International Union, United Automobile, Aerospace & Agricultural Implement Workers of America"; we will refer to it by the more usual shorthand name, the United Auto Workers, or simply the UAW. Likewise, when referring to the top echelon of union leadership we will write "national," not "international." 5. According to the transcript of the Senate confirmation hearings, Wilson's remark, given in reply to a question about potential conflict of interests between his corporate background and the duties of his would-be governmental office, was that he could "not conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. The differ-

Internal Labor Markets, Plant Closings, and Retirement

19

ence did not exist. Our company is too big. It goes with the welfare of the country" (see Gordon 1995). Of all the famous words never quite uttered as they were later famously remembered, this instance involves a barely significant difference. But however one wishes to distribute the emphases across Wilson's recorded words, the basic statement being conveyed was anything but fantasy. GM then accounted for roughly half of the market in an industry that had already remade the social, economic, political, and physical geography of much of the world, with much more soon to come. Wilson, however, was not exactly the champion of labor that Gordon strives to depict (see Chapter 2, below). 6. While the standard image of "the auto worker" centers on the assembly line, in fact only about one of every five auto workers was actually "on the line" (a proportion that changed very little over the decades). However, the tasks of most "production workers" were strongly governed by the pace of the assembly line. 7. As Doeringer and Piore (1971, p. 13) noted, the various requirements of on-thejob training were one of the stimulants to the development of internal labor markets in large firms. In his study of the work force of a milling plant that had been outfitted with the latest in automated technology. Walker (1957, pp. 24-25, 40) found that "the battle between men and machines" continued for 3 years before an "equilibrium was established between the complex behavioral and technical forces involved." Even though many of the members of the new mill crew had worked together in older milling plants, the "change to the new mill nonetheless meant a change in both functional and social relations with fellow workers for most men" (see also Chinoy 1955, pp. 70-72,85-86). 8. The impulse behind these programs (to which we return in the next chapter) was hardly new. The auto industry in general, and GM in particular, had promoted a familialist image of "employee involvement" as early as the 1930s, in an effort to persuade workers of the irrelevance of independent unions (see, e.g.. Fine 1969, pp. 23-28,42-47,187-188). 9. One of the nine was Fisher Body No. 1, the massive plant which had been a key site of the famous sit-down strike in January and February of 1937, as a result of which GM recognized the UAW as official bargaining agent of GM's workers (see Edsforth 1987, pp. 170-189; Fine 1969). 10. The population was restricted to male workers because even with oversampling we were unable to gain a sufficient number of female production and skilledtrades workers aged 50 or older; they comprised a very small proportion of the total blue-collar labor force of the plants. 11. Additional information descriptive of the population strata and the sampling is available in the Appendix. 12. That five-state area accounted for three-fourths of the auto industry's labor force, and three of every five of the industry's facilities, during the mid-1980s. Michigan alone accounted for as many employees and facilities as the four other states combined. 13. The grounds for astonishment recede, however, when one considers that those algorithms, or the behavioral patterns which they partially formalize, are not simply ex post inventions of a sagacious theorist. They are integral to a broad historical-cultural formation in which formal, procedural, and substantive rationalities of instrumentalism are highly prized, not merely as a machinery of

20

14.

15

16. 17.

Chapter 1 external relations and not only as an implement in a toolkit of applications to narrow technical problems of modeling or puzzle solving, but also as a set of characters by which people judge each other and themselves—indeed, a set of characters which people have increasingly become, in the historical production of competent actors. We are referring here to the technical concept of risk, which implies that one has a basis for selecting, from the range of all possible probability distributions, the single distribution that governs the given event. It is by virtue of this feature, for example, that one can calculate the risk of rolling a seven with a pair of balanced dice. Uncertainties greatly exceed risks, in volume, partly because of mensural limits, partly because of practical capacities of calculational skill, partly because of substantive rationalities, and partly because of nonrationalities. For a sampling of both earlier and more recent treatments, see Anand (1993), Edwards (1954, 1961), Ellsberg (1961), Koons (1992), Marschak (1975), Hausman (1992), and Savage (1954). Certainly we do not intend in that an endorsement of the available set of options as necessarily the optimal set from any particular point of view—management, union, employee, or any other. Rather, we intend simply a limitation of this study. Incommensurability defines a rather severe limit to the consequentialist principle of the rational-action model. For recent treatments of the limits, see, e.g., Raz (1986, pp. 322-326) and Stocker (1990, pp. 184-188,291-302). In the standard literatures of economics and psychology these differential processes are treated under the heading of "preference reversal" phenomena. For a sampling of treatments and evidences, see Grether and Flott (1979), Lichtenstein and Slovic (1971), Machina (1987), Tversky, Slovic, and Kahneman (1990); and for an assessment of the issues, Hausman (1992, pp. 227-244).

2 Some Matters of Context

INTRODUCTION The main events analyzed later in this book—workers' decisions about ending their careers in the auto industry via retirement—^were most immediately events of personal biography Workers who had contributed tens of thousands of hours of paid labor time during the course of 20 or 30 or 40 years of employment in the production facilities of General Motors grappled with the difficulties of scheduling a major transitional event of the life cycle: Should I retire now, or should I wait? For each individual worker it was primarily and largely the quotidian character of biographical experience that furnished the territory of that decision with intensities of meaning. Age, health status, family relationships, financial circumstances, the prospects of alternative or "second-best" employment in the local labor market, the attractions or anxieties (or both) of "quitting work"—these and similar other traits of personal experience levied their shares in the weight of the decision. But like all events of biography, these individual decisions were also nodes in a long and complex historical network of processes and events which had been instrumental in the specific biographical formations to a far greater extent than the biographies had been in forming even the most recent of the historical events and processes. Not that the auto workers were epiphenomenal to their own destinies. But nor were they in charge of the shadow world of their inheritances. With respect to the broad skein of conditions that had led to the actuality of particular options, contingencies, and expectations which composed the meanings of the decisional task, the workers had doubtless been "acted upon" much more than they had been determinative actors. The present moment of the decision came as a momentary end, a particular conjuncture in each biography, of developments in the political economy and public policy of a nation, in employer and union policies and practices concerning the regulation of labor in correla21

22

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tion with regularities of the life cycle, and in the vitality of one particular industry and, within that, of one particular company. Our intent in this chapter is to offer accounts of some of the more salient of those developments. The accounts are necessarily not constructed through the lenses of the individual biographies; the means of that are lacking. We offer instead synoptic accounts, brief and incomplete. They are derivative of, not substitutes for, standard histories of the topics addressed, and they are mostly tuned to the interests of this investigation of early retirement among auto workers during the 1980s.

THE TREND TOWARD EARLY RETIREMENT Best estimates indicate that labor-force participation rates among older men in the United States changed very little during the first four decades of this century (Ransom and Sutch 1986). Perhaps the secular trend toward lower rates began in the 1930s, but it was not until after World War II that persistent pronounced declines became the norm. Initially, the bulk of the reduction occurred among men aged 65 or older. But by the 1960s a second, parallel trend had begun, this one in the proportion of workers retiring "early" (i.e., prior to age 65), as observers were noting a steady growth in the relative numbers of "men who are well enough to work and who might get some kind of job if they were interested, but who prefer the leisure of retirement" (Epstein and Murray 1967, p. 105). Between 1970 and 1993 labor-force participation rates among men aged 62 through 64 fell by a third (from 69 to 45 percent). While much of that decline can be linked to the availability of Social Security benefits at age 62, notable decreases occurred also among men aged 60 or 61 (from 83 to 67 percent), and even among men aged 55 to 59 a downward drift in rates was unmistakable. Nor has the U.S. trend toward ever younger ages at which men retire been unique. Similar trends have occurred in Canada and in many European countries, although the pace of decline has varied from country to country (e.g., relatively small changes in Sweden, Norway, and Italy, but large declines in the United Kingdom, France, and the Netherlands; (see Layard, Nickell, and Jackman 1991, pp. 506-507; Quadagno and Quinn 1996).^ Most of the factors contributing to the downward drift in retirement ages have been articulated, directly or indirectly, in the "social reconstruction" elements of public policies concerned with problems of the regulation of labor (e.g., rising unemployment rates). Often these policies have deliberately promoted early retirement through a variety of legislative actions designed to reconstruct the incentive structures of public pension systems. The particular actions have not been uniform from country to country. But, generally speaking, eligibility ages have been lowered, requirements have

Some Matters of Context

23

been liberalized, and enhanced earnings-replacement schemes have been designed to encourage older workers to leave the labor force. Moreover, reforms of welfare programs not directly related to the public pension funds have enabled and sometimes encouraged early departures. For example, in the Netherlands, Germany, Sweden, and Great Britain disability insurance provides a source of income for unemployed and underemployed older workers, and as the eligibility criteria have been broadened rates of early retirement via a ''disability" status have increased (Guillemard 1991a; Guillemard 1991b; Jacobs, Kohli, and Rein 1991; Laczko and Phillipson 1991). Likewise, in some countries unemployment compensation programs have been altered in ways that encourage retirement; instead of providing only temporary income to ease workers through a period of layoffs, unemployment benefits have become a permanent pathway to retirement (see, e.g., Laczko and Walker 1985). Since the substantive as well as the procedural features of public pension schemes vary from country to country, and since the rate at which men have been retiring at younger and younger ages also has varied from country to country, it is perhaps tempting to conclude that the trend toward early retirement has been driven by liberalizations of the public pension systems. However, while provisions of public pensions have undoubtedly influenced early-retirement behaviors in each of the several countries for which systematic evidence has been assembled and studied, there is no simple pattern of correlation between variation in those provisions and variation in early-retirement rates. Indeed, Esping-Andersen and Sonnberger (1991, p. 230) concluded that cross-national differences in age-specific rates and trends of early retirement are greater than one would predict from differences either in the respective public pension systems or in the economic circumstances of the several countries. That the trend toward younger retirement ages has been widespread among countries of the North Atlantic region is indisputable. So, too, that it has been sensitive to more than economic fluctuations. Public policy formations, considered in historical-cultural context, have influenced retirement behaviors both directly and through complex interactions with changing contingencies of the market economy. But one should bear in mind that "public policy" in this regard has involved much more than the set of "entitlement programs" that provide direct income-replacement "transfer payments" such as public pensions and liberalized disability or unemployment compensation schemes. Instruments of public policy also operate in less direct ways—through tax codes, for instance, and through employment and employment-related regulations that encourage certain practices by employers and discourage others. The incentive structures pertaining to a worker's choice between continued labor supply and retirement are complexly molded at the intersection of these direct and

24

Chapter 2

indirect avenues of public policy instruments as they are manifested within specific market conditions, organizational cultures, and individual perceptions. A case in point can be seen in the United States, where the trend toward younger ages of retirement has been comparatively steep even though the public pension system has remained among the most conservative. The eligibility age for Social Security was lowered to age 62 for men in 1961 but only with a reduced-benefit provision (whereas in a number of other countries full-benefit eligibility occurs at age 60). And income from neither public disability nor unemployment compensation schemes is sufficient to make permanent withdrawal from the labor force an affordable option for most U.S. workers younger than 62. What, then, accounts for the large decline in participation rates among men who are still in their 50s? Has it occurred independently of instruments of public policy? Some observers have argued that it has. Esping-Andersen and Sonnberger (1991, pp. 244,247) concluded that the U.S. trend has been "largely a self-generated autonomous process happening independently of labormarket constraints,... not observably related to either push [i.e., rates of unemployment and labor-market contraction] or pull [retirement-incentive] effects," and that "the older worker has not borne the brunt of economic restructuration" practices. Since their conclusion was based on broad-grained data and a consideration of only the public pension system of retirement incentives, it is understandable that they found the trend-producing processes in the U.S. case relatively opaque. The accelerated flow of early retirements among men in the United States has occurred mainly in response to private-sector, employer-provided pension plans. As Esping-Andersen (1990, pp. 79-88,150-151) recognized elsewhere, unless one attends to the incentive structures of these pension plans—which form the primary and often the only source of income for workers who retire before age 62— the dynamics of early-retirement behavior in the United States cannot be adequately grasped. While employer-provided plans are properly termed "private-sector plans,'' that distinction can be overdrawn. Major features of the plans have been shaped by instruments of public policy, both deliberately and indeliberately. A few examples are noted in the next section, an overview of the development of private pension plans. Before turning to that overview, we should offer readers who are unfamiliar with the general structure of private pension plans as they exist today a brief description. Employer-provided plans are generally classifiable as either defined-benefit (DB) plans or defined-contribution (DC) plans. The distinction dates from the earliest private plans. While the two types of plan developed alongside each other, DB plans were increasingly preferred by firms during the early decades of this century (Latimer 1932, Vol. 1, pp. 43-48).

Some Matters of Context

25

In a DB plan the employer promises to pay each qualified worker a specified monetary benefit during retirement. Qualification is governed by 'Vesting" rules, the chief rule being that the worker must remain with the given firm for a specified duration before gaining pension rights. DB plans are not portable. In a DC plan, by contrast, the employer contributes a specified amount into a pension account, the amount calculated as a specified percentage of the worker's annual earnings. The worker may also make contributions to the account; under some DC plans this is compulsory. DC plans typically have shorter vesting periods, and they are portable. The size of the monetary benefit at retirement varies according to the value of the pension account at that date, which in turn is a function both of the accumulated contributions and of the success of investment decisions made by the individual worker or by the administrator of the plan (see, e.g.. Jeweler 1993; Schmitt 1993). Since DC plans are portable and place more of the decisional risk on the individual employee, they have been less instrumental in strategies of labor-force regulation. Historically, the longer vesting periods of DB plans, combined with the fact that they are not portable, have been effective in depressing labor-turnover rates. Until 1989, when federal legislation altered the rules,2 almost 90 percent of DB participants were subject to a 10-year vesting period (Clark and McDermed 1990, p. 26). In other words, orUy after 10 years of credited service with the given employer was a worker eligible to receive retirement benefits. Moreover, a vested worker who left the firm prior to a specified age was typically penalized by an actuarial reduction in the benefit entitlement.^ This, too, tended to depress labor-turnover rates. The pension market has been shifting from DB to DC plans in recent years, partly because newly enacted plans are more likely to be DC plans and partly because employment has been shifting away from industries that had initiated the DB type of plan (see e.g., Clark and McDermed 1990; Gustman and Steinmeier 1992). Also, it is worth noting, recent evidence indicates that participation in employer-provided plans has been declining among younger male workers, apparently because of the greater voluntarism of DC plans (see, e.g.. Even and Macpherson 1994).^ Since the present study is concerned with workers covered by DB plans, we will confine the following discussion to the development of DB plans, which still comprise the large majority of employer-provided plans.

THE DEVELOPMENT OF PRIVATE PENSIONS While not available to large numbers of employees (excepting corporate executives) until the middle decades of this century (Morrison and

26

Chapter 2

Roberts 1982, p. 97), employer-provided pension plans have been used as a component of strategies for regulating labor supply since the late 19th century. Apparently the first comiprehensive plan by a large private corporation in the United States was enacted by the American Express Company in 1875. The idea gradually spread to a few other large firms, especially the railroad companies (beginning with the Baltimore and Ohio in 1884), which set the principal pattern of benefit structures. According to this "railroad formula," an eligible worker's pension benefit was calculated at a base rate of 1 percent of the worker's wage, multiplied by the number of years of service, and was linked to a mandatory retirement age, usually age 65 or age 70. By 1900 a dozen plans were in operation. During the next two decades the number grew to 270, as many of the major industrial corporations—for instance. United States Steel, Westinghouse, Standard Oil, John Deere, Du Pont—established plans, mostly along the lines of the railroad formula. Du Font's plan, for example, paid a benefit calculated at a base rate of 1.5 percent of the worker's highest monthly salary, multiplied by years of service, with a vestment period of 15 years (Fischer 1977, pp. 165-167; Graebner 1980, pp. 120-125; Haber 1978; Latimer 1932, Vol. 1, pp. 20-26; Zunz 1990, p. 191). Because the record of evidence is sparse and partly anecdotal, systematic inferences about motives and intentions in the initial development and adoption of private plans are difficult to make. But judging from a survey conducted by the National Industrial Conference Board (1925), as well as various studies undertaken by state commissions and other investigators (see, e.g., Epstein 1922; Latimer 1932), it appears that the initial plans were responses mainly to organizational interests of the firm as internally calculated by company management. The union movement, still in its infancy, was occupied with more fundamental issues of survival and legitimacy, and more often than not viewed employer-provided plans suspiciously as an instrument of competition for worker loyalty. A few unions attempted to field their own pension plans (e.g., the International Typographical Union in 1908), but most of these were precarious ventures (Epstein 1922, pp. 193-210; National Industrial Conference Board 1925, pp. 66-67).^ There is in any case little to suggest that employees themselves had been clamoring for comprehensive pension plans. This is not to say that workers were generally unconcerned about postretirement income security. Surely they were concerned. But for most people these concerns were still framed within traditional forms of intergenerational transfer (i.e., reliance on one's adult children, relatives, etc.) rather than innovative forms of deferred compensation and public provision, which were widely viewed as "socialistic" or "communistic" invasions of the moral order. Insurance companies offered private annuity plans for individuals interested in "saving for old age," but very few people were attracted to them. Since the annuities typically gave

Some Matters of Context

27

extremely low rates of return (because of high "administrative costs" and other fees charged against the premiums), one might conclude that most potential customers were too astute to participate. However, state-administered voluntary annuity plans in Massachusetts and Wisconsin fared little better, despite significantly higher rates of return (Epstein 1922, pp. 274-279; Fischer 1977, pp. 168-169). Although life expectancy for men aged 60 in 1900 was 14.4 years among whites and 12.6 years among blacks (as compared to 18.4 and 16.2 years in 1988), most adult men apparently discounted their "distant futures" rather heavily, even when they had sufficient disposable income to invest in those future years, perhaps in the belief that they would not live to harvest long-term investments. Collectively as well as individually, of course, the dilemma stemmed from the limits of prescience: those persons who could least afford to make the investment at time^ were most likely the very people who at time^^^^ stood in greatest need of having made such investments (Latimer 1932, Vol. 1, p. 49; National Industrial Conference Board 1925, p. 66). Employer motivations in devising (or adopting) private pension plans, though undoubtedly mixed and varying from case to case, were generated mainly from organizational characteristics of the firm. The period from the 1880s to the 1920s witnessed a profound transformation in the organization of capital and thus in the organization of labor and employment relations, as a new corporate liberalism and progressivist ideology (and policies) remade the commercial, legal, and political landscapes (see, e.g., Horwitz 1992; Sklar 1988; Zunz 1990). A shift from proprietary to corporate, bureaucratic organizational forms entailed new understandings of an increasingly extensive domain of "employee management," some elements of which included attention to the costs of labor turnover in large firms that depended on increasingly (and internally) trained workers. Innovative interests in "personnel psychology" and "scientific management" soon came into play, as did other, related responses to the perceptual field of a bureaucratized organization of work. No doubt some employers offered pension plans because of genuine concerns for the well-being of their older workers, reflecting either remnants of the disappearing moral order of the proprietary form (in which employees were often family members, relatives, friends) or the moral order of a new corporate paternalism. But a major motive behind the early adoptions of private plans stemmed from employers' interests in reducing total wage bills by shedding the labor costs of older workers whose returns to company investments were diminishing—that is, by regulating the exit behavior of workers who had been loyal and valued employees but whose productivity had declined "because of age."^ Rather than follow what had been the typical practices—reassigning older workers to less demanding tasks (often at reduced wages) or simply firing them—employers learned that by offering a pension they could define an

28

Chapter 2

"expected retirement age" (indeed, often a mandated age)^ and thereby induce older workers to leave according to the employer's schedule, without damaging the loyalty of their most productive workers, those who had developed skills from long experience at the job but who had not yet entered their "declining years." The presence of a plan, it was thought, would alleviate anxieties about the future among the firm's most productive workers and thus bind them even more tightly to the firm, lower the turnover rate, and raise the quality of the firm's work force. Moreover, in virtually all cases the plan was explicitly defined as a revocable benefit (not a contractual obligation) subject to the private law of the firm; often the revocation trigger was linked to "inadequate service" including participation in strikes. The pensions were granted at the employer's discretion; workers had no guarantee that they would actually receive the pension benefits after retirement; older workers could (and sometimes did) have their pensions rescinded before they reached retirement age; and firms sometimes used the pension plans simply as a device for "dumping" unwanted workers (Fischer 1977, p. 167; Graebner 1980, pp. 121-131; National Industrial Conference Board 1925, pp. 14,24-40). The trend toward adoption of private pension plans accelerated during the period immediately following World War I, when a number of developments profoundly affected the relationship between buyers and sellers of labor time. None was more important than the rapid membership growth of a trade-union movement that sought to replace the "voluntarist" or "business unionism" tradition of previous decades. Confronted with the prospect of independent unions, many employers responded during the 1920s as they had before the war—^with unveiled hostility, using tactics such as strike-breaking, injunctions, and "yellow dog" contracts. The aim was simply to destroy "the unionist scourge/' mostly by frontal assaults. But other firms, especially the larger firms, recognizing the manifold costs of labor strife, sought instead to coopt workers through a new strategy of welfare capitalism, designed to make more workers more contented with company policy and less interested in striking or in joining independent unions (see, e.g., Bendix 1956, Chapter 5; Fine 1969, pp. 23-27). Employerprovided pensions—"industrial pensions," in the nomenclature of the day—comprised a part of that strategy More than 700 plans were in operation by 1930, mostly in large firms in the manufacturing industries. These pensions were still granted at the discretion of the firm and usually contained disclaimers of inviolable pension rights. Nevertheless, a growing number of employers realized that the fact of a pension-eligibility age, if observed with some regularity, lent valuable legitimacy to a firm's interest in taking advantage of the then existing labor surplus by replacing workers who were deemed "past their prime" with less expensive and (it was typically assumed) more trainable, younger workers. In effect, the presence

Some Matters of Context

29

of an "eligibility age" legitimated the use of a mandatory retirement age as a normal feature of employment relations in the bureaucratic organizational culture of the new world of work (see Levine 1988; Quadagno 1988). Most of the private plans in operation during this period were financially unstable. Already by 1925 warnings from the National Industrial Conference Board (1925, pp. 12, 101-122) and elsewhere emphasized that many of the existing pension funds had not been based on sound actuarial principles. As the industrial labor force grew and average wages increased, firms often found that their pension funds were seriously depleted. The situation worsened, of course, with the stock market crash of 1929 and the ensuing financial crisis. Some firms simply abandoned their pension plans altogether. The long years of economic depression further drained the trust funds of remaining plans, and the rise in bankruptcies eliminated pensions for thousands of other workers (Fischer 1977, p. 167; Latimer 1932). Partly because of the private-sector initiatives, the idea of systematic provisions for old-age income security had gained salience in the public consciousness. It was not a new idea. Thomas Paine had proposed a national pension system in 1796; the federal government had established a pension system for military veterans following the Civil War; and a handful of states had been considering (and in three instances—Massachusetts, Wisconsin, and Arizona—implementing) public pension systems. Efforts to legislate a comprehensive national system had begun soon after 1900, but the proposals always floundered against strong resistance from keepers of the public morality, who saw in all such proposals a corrosion of the moral fiber of "self-reliance" and "rugged individualism" (see, e.g., Epstein 1922, pp. 228-243). However, as doubts about the ability of the private sector to provide that old-age income security became more widespread in the midst of massive unemployment and poverty, support for a nationalized pension system gradually increased, even among some employers (e.g., Alfred du Pont). The result was the Social Security Act of 1935, which provided old-age insurance (OAI) for workers in certain industries at age 65. Not surprisingly, given the history of debates about public morality, negotiations of interest across competing (and changing) practical understandings of the difference between the private law of the firm and institutions of public law were present at the birth. To obtain sufficient support for the legislation from business leadership, for example. Congress allowed employers to deduct their^ OAI contributions as nontaxable business expenses. The Act also allowed employers to reduce their total pension costs by integrating OAI benefits with their existing pension plans. Whereas workers might have hoped that integration would increase the total package of retirement benefits, companies generally opted for a substitution instead (Dyer 1977a,b; Fischer 1977, pp. 168-184; Jacoby 1993).

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Table 2.1. Marginal Corporate Tax Rates and Pension Assets, 1920-80

Year

Marginal corporate tax rate (%) paid by large firms

Noninsured pension assets: Book value (1980 dollars) per capita

1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980

10.0 13.0 12.0 13.7 24.0 40.0 42.0 52.0 52.0 48.0 49.2 48.0 46.0

2 8 35 60 82 124 209 444 773 1,203 1,478 1,435 1,517

Source: Ippolito (1986a, p. 25).

From the beginning, then. Social Security was linked to employer-provided plans in ways that often served the interests of the firm. However, that linkage allowed influence to flow in both directions. Employer-provided plans received favored tax treatment, as amendments to the Internal Revenue Code created tax advantages both for money paid into pension funds and for interest generated by those funds. But while those tax advantages encouraged eniployers to institute pension plans, they also gave the federal government a mechanism for regulating employers' management of the pension funds. Under two Revenue Acts, those of 1938 and 1942, the federal government began specifying the conditions under which contributions to pension trust funds would be tax deductible. The Revenue Act of 1938 forced companies to place pension funds in an irrevocable trust, thereby closing tax loopholes that had allowed employers to contribute to the funds during years when company earnings were high and then recapture earnings during lean years by revoking the trust. The 1942 Act allowed employers to deduct their contributions to pension plans only if the plan had been incorporated into a written contract guaranteeing that the plan would be permanent and for the exclusive benefit of the firm's employees and their beneficiaries. But as the marginal rate of corporate income taxation continued to increase (from 13.7 percent in 1935 to 24.0 percent in 1940, 40.0 percent in 1945, etc.; see Table 2.1), the preferential tax treatment associated with pension plans grew more and more attractive to employers despite the added regulations, especially since the ability to integrate the em-

Some Matters of Context

31

ployer-provided entitlements with Social Security benefits was retained (Quadagno 1988; Quadagno and Hardy 1996). COLLECTIVE BARGAINING AND PENSIONS The National Labor Relations Act of 1935 established a legal framework for the right of workers to organize on the basis of collective interests and to settle contract disputes with employers through regulated collective bargaining. Even though the legislation was not particularly innovative and had few, mostly dull teeth, it was stoutly resisted by many employers. General Motors executives, for instance, characterized it as ''thinly disguised class legislation" which would "promote the exploitation of the American worker for the benefit of a comparatively few professional labor leaders responsible only to themselves" (quoted in Fine 1969, p. 51). A major turning point in relations between corporate management and the labor movement occurred in 1937, when, following a sit-down strike at the Fisher Body Plants in Flint, Michigan, General Motors recognized the United Auto Workers as labor's official bargaining agent (see Fine 1969). Bear in mind that GM was a huge corporation, by the standards of the day, with assets of $1.5 billion and 69 plants located in 35 cities. The UAW victory was a monumental step in the legitimation of the union movement. Thereafter the proportion of unionized labor in the manufacturing industries grew rapidly, and by 1946 nearly 70 percent of all production workers in the major manufacturing industries were covered by a union contract (Piore and Sabell984,p.81). The story of unionism and its relations with corporate management in the United States is a complex one, well and variously told by many others, and our aim here is not to repeat or to add to any of those tellings. Rather, for purposes of our chief interest in this section—the union role in the development of pension plans—a highly adumbrated account of certain aspects of labor-management relations during the years following World War II will suffice. Model Contracts and Pattern Bargaining Three contextual features of labor-management relations during the immediate postwar period were of paramount importance (see, e.g., Cohen and Zysman 1987, pp. 138-139; Edwards and Podgursky 1986, pp. 19-22). One concerns the legal framework of workers' rights of association: while the National Labor Relations Act of 1935 (NLRA) recognized those rights and established a labor court system (the National Labor Relations Board), its provisions for enforcement were anemic at best, subsequently enroded

32

Chapter 2

in the Taft-Hartley amendments of 1947, and then virtually abolished from within the NLRB itself during the 1980s (Clark 1989, pp. 4-6, 151-170, 180-184; Horwitz 1992, pp. 235-237; Klare 1978). For all practical purposes, employer compliance with the NLRA and with Board rulings has been voluntary. Nevertheless, a number of NLRB rulings during the postwar years were instrumental in regulating a new "labor accord." A second contextual feature is the fact that the core industries in which the union movement registered its greatest success had large fixed investments in physical plants, concentrated in the Northeast, North Central, and then Pacific Coast regions. Steel mills, automotive assembly plants, and the like, were still relatively new and prosperous; capital costs made them virtually as difficult to move as coal mines and dockyards. The regional concentration of physically immobile facilities significantly aided the organizational efforts and bargaining power of unionized labor. By the 1980s, however, technological changes in the core manufacturing industries had rendered much of that physical plant obsolete, and firms anticipating the need to build new facilities could now use the uneven geography of industrial location and correlated union strength to their advantage by engaging in concessionary bargaining with local communities and with union locals. The third feature is the oligopolistic character of domestic markets in the major manufacturing industries (e.g., automotive, steel). The market in each of the industries was increasingly dominated by a small (and ever smaller) number of very large firms which competed with one another primarily on the basis of product cosmetics and marketing techniques rather than on the basis of price and product innovation. Within this context, a so-called Fordist system of regulation came to characterize labor-management relations (Harrison and Bluestone 1988; Kochan, Katz, and McKersie 1986; Sayer and Walker 1992). In contrast to the more tumultuous, confrontational approach which had been the rule prior to the national emergency conditions of the war years, the postwar "labor accord" featured an increasingly bureaucratized, orderly division of negotiative jurisdictions in the contract bargaining process. To the extent that the NLRA's recognition of the basic structural conflict of interests between labor ^nd management was retained, it was subordinated and tamed under a mostly implicit agreement that centered on a routinized wage-determination process and that assigned to unions the twin roles of regulating mobility through the job-classification system and enforcing "labor peace" in exchange for employer discretion in organizing the production process, in hiring, in controlling investment decisions, and in most other matters not directly involving shop floor management practices. The automobile industry was at the forefront of these developments, with firms

Some Matters of Context

33

in other mass production industries often adopting procedures irutiated in agreements between the United Auto Workers and the major auto makers. The process of wage determination consisted of five main elements. First, the model contract formula: initially established in the 1948 settlement between GM and the UAW, the formula included an "annual improvement factor" (AIF) which tied wage increases to advances in productivity and rekindled Henry Ford's fabled notion that good workers should be paid enough to enable them to consume the products they made, thereby contributing to the stability of the larger economy (Harrison and Bluestone 1985, p. 85).8 During the late 1960s and until the 1980s, the AIF amounted to 3 percent a year. The 1948 UAW-GM contract was also the first major industrial agreement to contain a cost-of-living adjustment (COLA) as part of a multiyear wage-determination formula. The COLA provision often meant that the AIF amounted to a real, rather than nominal, increment in wage rate (Katz and MacDuffie 1994, p. 200). Second, "pattern bargaining," which had two dimensions: when an existing contract expired, negotiations did not revert to a "zero-based determination" but instead assumed that previous settlements had established a pattern of expectations for future settlements; and a settlement reached with one major firm in a given industry set a standard to be followed by other companies in that industry (and often by companies in other, related industries). Third, federal labor legislation forced nonunion employers either to increase their wages to the level of relevant collectively bargained rates or run a high risk of having their labor forces unionized. Fourth, minimum wage legislation restricted the spread between top and bottom wage-rates, thus lessening wage-rate inequality. Fifth, wage-setting mechanisms in the public sector linked the movement of salaries paid government workers to the trend in compensation among unionized workers in the private sector (Piore and Sabell984,p.80). In addition, wage schedules were tightly linked to a job classification system in which component tasks of a technology of mass production were grouped into hierarchical "lines of progression" or "seniority districts," graded by skill levels, with wage-rates attached to characteristics of the job and therefore standardized across individuals holding the same job grade. In the GM plant which Chinoy (1955, p. 37) studied during the late 1940s and early 1950s there were already more than 500 separate categories in the job classification system. Training to the job for new workers was job-specific (i.e., no "cross-training" or multiple-skill apprenticeships) within a relatively short probationary period (usually 1 to 3 months; Chinoy 1955, pp. 38,42). Mobility up the job ladder was regulated by highly specific seniority rules which assumed a rigid equivalence between clock-time on the job and level of ability. Priority in filling higher-paying vacancies was de-

34

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termined by length of service. During periods of industry contraction workers with more seniority "bumped" those with less into the surplus-labor category ("laid off); when demand increased sufficiently, recalls from layoff occurred in order of seniority (Piore and Sabel 1984, pp. 113-114). Private Pensions as a Union Benefit Once the wage-determination process has been established (thus, for all practical purposes, removed from the table of collective-bargaining issues), unions switched their negotiative interests to other benefits. Pension provisions were an early candidate. Even before the routinized wage-determination process had been fully tested in later rounds of contract negotiations, pensions had become an issue. In 1948 the National Labor Relations Board ruled that pensions were a negotiable item in collective bargaining agreements, and immediately thereafter the large industrial unions demanded that employer-provided pensions become part of a total compensation package. In the 1948 contract negotiations between the UAW and GM, company officials, contending that they were financially unable to increase wages and benefits, resisted the union's demand for negotiations over pensions. Charles Wilson, then head of GM, complained about "this tendency to stretch collective bargaining to comprehend any subject that a union leader may desire to bargain on." If not stopped, Wilson argued, it would result in "the union leaders really running the economy of the country" (quoted in Atleson 1983, p. 148). But in 1949 Ford Motor Company agreed to provide a defined-benefit pension to workers who retired at age 65 with 30 years of service. Following the already established principle of pension integration. Ford's plan was designed as a supplement to each qualified worker's Social Security benefit, with Ford contributing enough funding to raise the total monthly benefit to $100. This plan became a pattern setter in the industry. The general concept spread to other industries as well, and by the late 1950s over one-half of all unionized employees were covered by integrated defined-benefit plans (Quadagno 1988). In the early 1960s a separate tier of pension benefits was added to the existing retirement plan. "Early retirement" benefits allowed workers to retire before reaching Social Security eligibility. Early retirement was advocated by trade unions, which sought both to protect older workers and to maintain employment levels for younger workers. When plants closed or relocated, older workers were given the choice of either moving to the vicinity of another plant or trying to find new employment—^neither an easy option for workers in their 50s or 60s. Further, technological changes in the industry disproportionately threatened older workers (Gordus 1980). However, the seniority system meant older workers retained greater job security than younger workers.

Some Matters of Context

35

In 1961, following a period of high unemployment. Congress amended the Social Security Act in order to provide actuarially reduced benefits to men at age 62. Three years later the first early-retirement provisions were added to the contract settlements between the UAW and the Big Three auto companies. These new provisions allowed auto workers to retire with reduced benefits at age 60 if they had at least 10 years of service and at age 55 if they had at least 30 years of service.^ The provisions also included "supplemental" benefits, paid until the worker was eligible for Social Security at age 65. However, qualification for this supplemental benefit was contingent on the worker's agreement to limit earnings from any postretirement employment, an agreement designed to encourage retirement not only from the auto industry but also from the labor force in general (Barfield and Morgan 1970, p. 166). It was after this new early-retirement option had been in effect for 6 months that Barfield and Morgan conducted their survey of auto workers aged 58 through 61. They found that financial incentives of the early-retirement plan were very effective in pulling older workers out of the labor force. Two-thirds of the respondents either had retired before age 65 or were planning to do so. Fully a third of the original sample had retired before age 62, the age of eligibility for reduced Social Security benefits. Thus, the early-retirement provisions benefited workers, companies, and the union. Older workers could retire early and still receive benefits. Firms could use pensions to weed out less productive workers, including those who had trouble keeping pace with the assembly line. The union could look forward to growth of membership among young workers, knowing that it had protected the rule of seniority and maintained the loyalty of its older (including retired) members.

HARD TIMES IN THE AUTO INDUSTRY Thomas Fitzgerald, a highly placed official of GM's Chevrolet Motor Division, opened his article in the Harvard Business Review by announcing that "[rjising costs and recessionary pressure have prompted the business community, as well as administrators of public agencies, to seek economies. One potential source of savings is in labor costs, but these have resisted reduction because of the downward rigidity of wage rates and the difficulties of increasing aggregate labor productivity." These sentences were written not in 1991 nor in 1981 but in 1971—well before the first of the famed "oil shocks" of the 1970s. The standard management discourse of efficiency, competitiveness, and profitability has perennially featured "excessive labor costs" and "inflexible labor markets" as chief impediments to better corporate performance. What Fitzgerald knew to be the case in 1971

36

Chapter 2

was still part of management's tool kit of facts and figures in 1981, but now the standard matter-of-fact knowledge was accompanied by emotive sounds of the claxon. Entire manufacturing industries—including the auto industry, which more than any other had stamped the conspicuousness of "rising middle-class prosperity" in the postwar world dominance of the United States—seemed in peril of being driven through the vanishing point. In the biographical perspective of a lifetime, blue-collar as well as white, the health of an industry automatically equated with the health of particular firms: the auto industry, for example, was General Motors and Ford and Chrysler. These were, after all, the actual sites of the lifetimes spent at work, blue-collar or white. Employees on both sides of the bargaining table were now speaking of labor costs and rigid labor markets with a somewhat revised understanding of the situation—though only "somewhat revised," since both sides of the table were ostensibly united (more or less) in a market of employment relations still intensely national (management speaking of "national competitiveness"; union leaders and rank-and-file members speaking of "jobs at home for American workers"), even though the capital markets which had been driving the technological innovations, the rebuilding of war-devastated infrastructures in Japan and Germany, and the increasing mobility of skills, public policies, and consuming bodies had dissolved much of the underside of our everyday maps of political geography. The 1980s were an especially difficult time for U.S. manufacturing industries in general. A recent summary of "the main developments of the 1980s in private-sector American industrial relations" tells of some of the consequences: "declining unionization, employers setting the agenda in bargaining, the spread of employee involvement programs and work place innovations of various types, increased decentralization in bargaining structures, declining real wages, and heightened concern for job security" (Voos 1994, pp. 1-2). Not only was the U.S. auto industry not immune to those processes; in many respects it was in the vanguard, just as it had been in the vanguard of developments during the decades of prosperity. In 1950 the United States accounted for 80 percent of world production of automobiles (Feldman and Betzold 1988). By 1989 the U.S. share had dropped to 14.6 percent. During the latter part of that period the declining relative shares combined with a reduction in the absolute volume of units produced: in 1960 the U.S. share of the world's passenger car production was 52 percent of 14.6 million units, or 7.6 million units; in 1988 the U.S. share was only 12.8 percent of 48.628 million units, or 6.2 million units (Stark 1989; Wards 1989). The effects on industry employment were profound. Until the 1980s many observers had believed that industries characterized by a high concentration of very large firms would experience relatively low rates of labor outflow during periods of contraction, because

Some Matters of Context

37

large firms tend to have stronger internal labor markets and relatively high per capita investments in firm-specific skills (Brown, Hamilton, and Medoff 1990, Medoff 1979). The recent record suggests otherwise (DiPrete 1993). Between the end of World War II and the late 1970s the auto industry grew increasingly oligopolistic—fewer but larger firms, each with a robust internal labor market. The number of production workers grew by about one-fifth during that period, reaching a peak in 1978. Between that peak and 1982, however, total employment in the industry (SIC 371) declined by 30 percent (from just over one million workers to just under 700,000). The number of production workers declined by 34.5 percent, from 782,000 to 512,000, with many of these remaining workers on indefinite layoff (e.g., the number fluctuated between 150,000 and 269,000 during the first 3 years of the 1980s). In late 1981 one-third of the UAW members at Ford and GM were on layoff; the gates to 22 Big Three plants had been closed, with more closures on the horizon. Industry employment rebounded in 883,500 in 1985, only to recede again during the next 6 years.^^ Correlatively, total UAW membership, which had stood at about 1.5 million in 1979, was down to 950,000 in 1990, a decline of 37 percent. Hourly wages suffered. In 1979, under the threat of bankruptcy, total collapse, and/or acquisition by a Japanese or European auto maker, Chrysler's workers agreed to a concessionary package that reduced their hourly wage rate $2.50 below the rate for Ford and GM workers and included the loss of the AIF, the automatic COLA, and paid personal holidays. Ford and GM followed suit in 1982. The nomial wage rate for a GM assembler in 1980 was $9.77; it was $13.15 in 1985 and $15.69 in 1990. But adjusted for inflation (CPI adjusted, 1982-84 base), those nominal rates translated into real rates of $11.86, $12.22, and $12.00, respectively (Harrison and Bluestone 1988, p. 87; Katz 1985; Katz and MacDuffie 1994; Morales 1994, Ch. 1; U.S. Bureau of Labor Statistics 1985). The crisis in the industry undermined major features of the postwar labor accord both directly and indirectly. Direct effects included management demands for concessionary bargaining with respect to wages and work rules, extended periods of layoff during which workers were vulnerable to loss of seniority and recall rights, and the closure of plants, especially in states that had a relatively strong history of unionism, at the same time that new production facilities were being built in states less sympathetic to unions (i.e., the so-called southern strategy).^^ Indirectly, structural changes in the national economy held up a refractive lens through which to review unionism's recent history. The fact that blue-collar workers gained dramatically larger shares of national income during the quarter-century following World War II had often been attributed primarily to ''union power." But in retrospect it was becoming evident that much of the gain had been due to demographic and structural changes in the economy—for

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instance, the growth of employees (i.e., a category of the bureaucratic corporate form) at the expense of shopkeepers, artisans, farmers, and the like. As large industrial firms grew increasingly attentive to issues of competitive advantage in globalizing markets, and increasingly attributed their failures of competition to inflexible labor markets and excessive labor costs, it became ever more apparent that "union power," even at the peak of union membership during the 1950s, had been dependent on at least the indifference, and often the cooperation, of the major industrial firms (see Clark 1989; Rothstein 1986; Sayer and Walker 1992). During the good economic times of earlier decades the primary issues in contract negotiations, in union representation elections, in the internal politics of union locals, and in the relationships of union locals to their national leadership had typically been formulated on a systematic national basis, with locally particular issues accorded secondary status. The systematic issues centered on improvements of wage-rate and benefit packages and the regulation of conditions in the internal labor market. Those issues did not disappear duiring the 1980s, but they were often supplanted by nonsystematic, locally specific issues of leadership, loyalty, and job protection, as the number of plant closures increased, unemployment levels rose, and local communities had to cope with the resulting tensions of job rationing (Clark 1989, pp. 102-104; Dudley 1994; Zetka 1995). The internal cohesion of unions in the manufacturing industries generally suffered from the presures of rationing, which often put union locals in a relationship of rivalry at the same time that union leadership at the national level was advocating "cooperative partnerships" between labor and management. As Clark (1989, pp. 70,185-187) noted, "many corporations depend upon their unions to help design and implement restructuring programs" for the rationing of jobs, even when it is apparent that rank-and-file workers are divided on the prudence of those ventures. So it was in the auto industry, where union influence over the work place diminished during the 1980s partly because of the expanded use of Quality of Work Life (QWL) programs and work teams, even though these cooperative ventures were designed and regulated by a committee of top UAW and management officials. While integrative schemes of labor-management relations such as QWL programs (also known as "worker participation" or "employee involvement" programs) have recently gained notoriety because of identification with an alleged "Japanese style" of industrial relations, they have a long heritage in the United States.i^ The NLRA (section 8a.2) set out a model for integrative schemes, although actual practices have often diverged from that model. Most common in the unionized sector, earlier versions of QWL programs were often implemented unilaterally by management as an alternative to collective bargaining—arguably in violation of

Some Matters of Context

39

the NLRA section (a possibility which the NLRB and courts have avoided addressing; see Kohler 1986, p. 500)—^but in recent decades union leaders (at the national level) have joined management officials and others in endorsing QWL programs as instruments that can achieve a ''democratization of the workplace" (see, e.g., Bluestone and Bluestone 1992; Ephlin 1988).i3 However, their most important achievement to date has been additional shrouding of the basic structural conflict between buyers and sellers of labor time. As one analyst put it, "employee involvement" programs in general are much like "a public defender's office that was established, funded, and staffed by the District Attorney" (Weiler 1990, p. 207). For rank-and-file workers in the auto industry, the immediately apparent effects of recent expansions of the QWL technology have included a massive revision of the job classification system. In some QWL programs, as many as 60 semiskilled production jobs have been collapsed into a single category, with wage schedules altered in the process. The revision was connected to the auto makers' relocation of production facilities to southern states which, partly because of "right to work" legislation, had lower wage rates. In one sense, this "southern strategy" failed; all plants owned by the U.S. auto makers were eventually unionized (GM's last holdout was unionized in 1984).i4 But the strategy succeeded in more subtle ways, as the southern plants frequently experimented with flexible forms of work organization, eroding principles of task specialization and the solidarity of pattern bargaining (Katz 1985; Katz and MacDuffie 1994; Piore and Sabel 1984, pp. 243-244). Another sort of southern strategy resulted in even stronger conflictive pressures on the union's role in job rationing. U.S. companies found it profitable to move some of their production components to countries such as Mexico and Brazil in order both to exploit the lower labor costs and to comply with demands by the governments of those countries that foreign companies expecting to sell products in the local markets had to have production facilities in those same markets (Piore and Sabel 1984, p. 198). The maquiladoras plants of Mexico, for instance, took in raw materials from the United States, processed them, and then exported the finished product back to the United States, with duty paid only on the value of the labor. This arrangement was originally made possible by a 1930 law which had been designed to let Detroit auto plants ship work to Canadian parts plants. Many years later, when the Mexican government sought to build new manufacturing plants for displaced farm workers, it used the law to encourage U.S. firms to set up border factories, throwing in duty-free imports of raw materials, low rent, and cheap labor. The strategy depended on keeping Mexican labor unorganized, and the Mexican government cooperated in antiunion campaigns. By 1989 GM operated 23 plants south of the U.S. border—the majority built just south of the Rio Grande—having

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Chapter 2

closed 20 plants north of the border between 1982 and 1989 alone (Harrison and Bluestone 1988, p. 30). While this "outsourcing" to low-wage countries typically involved the production of low value-added goods, with most of the high value-added production retained in U.S. plants, the resulting externalization of labor demand contributed to a weakening of the internal labor market (Morales 1994, pp. 79-86). In response to the conditions of its weakening position, the UAW attempted the difficult feat of maintaining a cooperative orientation to the task of rationing jobs in a shrinking U.S. industry, while at the same time protecting wages and job security among remaining workers. The union's general strategy was to win agreements that would make plant closures and layoffs more costly to the companies. The strategy was only partially successful. During the early 1980s the union won agreement to a new Guaranteed Income Stream (GIS) program, according to which a worker who was placed on permanent layoff after at least 15 years of service would receive 50 percent of the previous year's earnings, plus an additional 1 percent for each year of seniority beyond 15 (up to a maximum of 75 percent of the previous year's earnings), until recall or retirement. Recall rights, eroded by long-term layoffs, were extended for workers who had not broken their seniority queues. The union also won agreement to an experiment in guaranteed employment at selected plants (four at GM, three at Ford): 80 percent of the existing work force would be guaranteed employment during the term of the agreement.^^ As well, management promised not to close any plants for 24 months, and workers won a profit-sharing plan and the establishment of retraining programs. The 1984 contracts with the Big Three included additional provisions designed to protect workers who "might be displaced from their jobs because of technological advances, corporate reorganizations, outsourcing, or other negotiated productivity improvements" (Katz 1985, p. 176). Displaced workers would be assigned to a Job Opportunity Bank Security (JOBS) program and receive full pay while awaiting transfer to another plant or retraining for other jobs in the company. This program was to run for 6 years. During its first 3 years of operation approximately 12,500 GM workers were enrolled. The year 1984 also saw significant recovery in the auto industry, with the Big Three reporting collectively an all-time record profit of nearly $10 billion. Union and trade publications would later refer to this turnaround as a "workerless recovery," however, since industry employment continued to lag well behind the levels of the late 1970s. Rather than recall laid-off workers, management increased overtime among presently employed fulltime workers. In 1982, for instance, production workers in the industry averaged 2.5 hours of overtime per week; by 1985 the average had reached 5.4 hours, and it remained in the range of 4 to 5 hours throughout the late

Some Matters of Context

41

1980s. The advantage to management was both greater flexibility in regulating labor supply during future downturns (i.e., by reducing overtime hours instead of laying off workers) and lower benefit costs. In 1988 the union successfully negotiated provisions regulating the use of overtime. Workers laid off because of volume declines had to be recalled in proportional numbers when production picked up after a slump. When overtime was used for any reason, the company had to pay into a training fund $1.25 for each hour of overtime exceeding 5 percent of "straight time." It was soon evident, however, that the intended penalty was an insufficient brake on ''overtime abuse." On the issue of "outsourcing," the union won contractual guarantees designed to protect the jobs of current UAW members with at least 1 year of seniority: if companies brought competing vehicles or parts into the United States, no auto worker making a similar product could be laid off. The guarantee also stipulated that workers could not be laid off except as a result of "carefully defined" reductions in sales. The language of the agreements was crucially vague, however, making the stipulations more flexible in enforcement than suited many adversely affected workers. One GM employee, a member of Local 22 (southwest Detroit), spoke for countless others when he protested in the pages of Solidarity, UAW's official newspaper (August 1989, p. 20) that "GM is announcing hundreds of layoffs each week because of a contract loophole permitting layoffs because of 'slow sales.' When we voted to ratify this contract, we were told our jobs would be counted in the secure employment level (SEL) program. Now we find out differently." The union's response to the complaint did not offer much solace: "The contract protects eligible UAW members against layoffs due to outsourcing and virtually any other reason except for carefully defined volume reductions linked to market conditions—in other words, poor sales. However, the contract also stipulated that as sales rise again, management must call back workers in the SEL instead of just assigning overtime—a major gain for us" (Solidarity, August 1989, p. 20). Downward pressure on labor costs in U.S. plants continued throughout the 1980s, despite improvements in production figures and profits. Large numbers of auto workers were shed from the corporate payrolls, and wage rates changed hardly at all in real (constant dollar) terms. In spite of the difficulties, however, the UAW did enjoy some success in protecting the comparatively favorable wages of remaining workers. In 1989 the average hourly wage for all production workers in the motor vehicle industry (SIC 371) was $14.25—considerably better than the $10.49 for production workers across all manufacturing industries and better still than the $9.66 for production and related workers across all industries. Compared to the corresponding 1980 averages, those 1989 wages were uniformly 44 to 45 percent higher in nominal (current dollar) terms and about 2 percent lower in

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Chapter 2

real (constant dollar) terms. So the relative advantage in hourly wages enjoyed by auto workers at the beginning of the decade was maintained. Comparisons of average weekly earnings tell a rather different story, of course, because of the accelerated rate of overtime hours in the auto industry. Whereas average weekly earnings for production workers across all manufacturing increased a little more than 3 percent in real terms, for auto workers the increase was more than 10 percent (U.S. Bureau of the Census 1991, Tables 669,674). A Closer Look at GM, Circa 1987 As Morales (1994, pp. 85-86) has pointed out, the U.S. auto makers were initially uncertain how best to respond to the changing circumstances of the domestic industry. Would size reductions be sufficient? Or would basic revisions of production technology be required; and, if so, exactly what revisions? Initially, the general tendency was to try some of each approach. General Motors, the largest of the U.S. auto makers, was slowest to respond effectively with either approach, and by 1987 (the begiiming of the contract period that forms the context of the retirement decisions analyzed later in this book) GM's production efficiency was distinctly poorer than that of its main domestic competitor. Ford. Following the end of the severe recession of the early 1980s, GM expanded its production capacity and, unlike Ford and Chrysler, recalled a large proportion of laid-off workers. A reorganization in 1984 led to some consolidation of production facilities, experiments in new technological applications, and a joint venture with Toyota (NUMMI, or New United Motor Manufacturing, Inc.), but GM's share of domestic sales continued to erode nonetheless. From 1986 to 1989 GM's market share slid from 41 percent to 35 percent, four of the lost percentage points occurring in 1987 alone. Industry analysts estimated that each percentage-point decline reduced GM's optimal work force by about 10,000 hourly workers (Woodruff, 1990, p. 40). During the 3-year period from 1984, GM spent 12 percent of the $1 billion it had allocated for its participation in the JOBS program (the "job bank"), in order to retrain just over 12,000 workers. Ford had 2,000 workers in the program. In 1987 GM was paying 50,000 workers on indefinite layoff supplemental unemployment benefits (SUB) of 95 percent of the regular wages. These and related provisions served from the union's point of view as significant disincentives for GM to close plants, "outsource" to foreign or nonunion suppliers, or otherwise cut employment levels.^^ Yet GM's plants were operating at an average of 75 percent of capacity; Ford's, at nearly full capacity. GM was still in the midst of decisions to close plants— two in August 1987, another 11 scheduled for shutdown by 1990, and still others on the horizon—^whereas Ford had most of its paring and reconsoli-

Some Matters of Context

43

dation behind it, having closed only one plant (a forge plant, with 909 employees) since 1983. GM had continued to keep a higher proportion of its components production ''in house": whereas an average of 50 percent of the components of Ford's vehicles were supplied by other companies, the corresponding figure for GM was only 30 percent. In the 1987 round of contract negotiations the UAW selected Ford as pattern setter, with the primary goal of enhancing job security for remaining and future workers. The union recognized GM's parlous state. As the director of the union's GM Division put it, "GM faced declining market share, eroding sales, the announcement of nearly a dozen plant closings, a loss of public and investor confidence, and a crisis in its in-house components operations. Moreover, we in the union made clear our position that ... a large measure of GM's problems resulted directly from the company's lack of uniform labor policy and an absence of clear direction and followthrough from its top management" (Ephlin 1988, p. 65). Judging from the observations of industry analysts (e.g., Zellner 1987; Zellner with Bernstein 1987), the UAW decided to allow GM substantial maneuvering room by demanding less from Ford than probably could have been won, in order to avoid a confrontation with GM. In any case, GM agreed to essentially the same contract provisions as Ford. It was nonetheless an expensive settlement for GM. The UAW had wanted GM to continue to employ the same number of workers at the end of the contract period as it employed in 1987 (375,000, both active and inactive). GM, on the other hand, already had 50,000 workers on layoff, with an additional 37,000 due for layoff by the end of the contract period because of announced plant closings; and its market share had dropped by 4 percentage points in 1987 alone, with more slippage likely to come. In the end, GM agreed to a secured employment level (SEL) of about 315,000 with layoffs allowed only because of sales slumps (i.e., the "carefully defined" layoffs referred to earlier). GM also agreed to a ban on plant closings, excepting those already announced (Ford had agreed to a ban in 1984). Union officials reportedly expected that additional closures, though not yet announced, were a likely part of GM's reconsolidation plans (Zellner with Bernstein 1987). But they would be costly to the company, since affected workers would remain on the payroll regardless of whether jobs elsewhere in the company were found for them or not. In exchange for improvements in job security, the union promised to cooperate in efforts to increase productivity. Joint committees of union and management officials were directed to examine "Japanese style" work teams as a strategy for increasing productivity per unit of labor. Job classifications and work rules would need to be reduced or modified in order to create a more flexible regime. A new "Quality Network," developed and staffed jointly by management and union representatives, would work to

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enhance quality at all levels, from design to final assembly. One union official promoted these aspects of the agreement by avowing that "for the first time in the history of General Motors, union and management are working together to address the issues of quality and customer satisfaction" (Ephlin 1988, p. 65). The 1987 contract also included improved health care, disability, pension, and profit-sharing benefits. Pension benefits were raised by $4.20 per month per year of service, an increase of 19 percent over the previous contract. In addition, the agreement included improvements in some early-retirement options for qualified workers, details of which will be presented in the next chapter. Here, we consider briefly the relationship of those plans to GM's difficulties in reducing the size and cost of its internal labor market. Early Retirement as a Siphon of Excess Labor The practice of using early-retirement pension plans as an instrument for regulating labor supply began during the 1973-74 recession, when many companies added special incentives to their established early-retirement programs. Developed as a variant of "severance pay" allowances or bonuses paid to workers who met specified criteria, these incentive programs were typically made available during limited periods of time—or special retirement "windows"—to defined groups of workers who otherwise either had not attained early-retirement eligibility or, if technically eligible, had not qualified for a benefit level that would have made early retirement feasible. A parallel program of special incentives, known as "mutuals," operated in essentially the same manner, except that it could be offered at any time by mutual agreement between management and specified individual workers. During the 1980s the UAW negotiated expanded opportunities for senior workers to take early retirement, especially when they were adversely affected by plant closures or job transfers. CM, moving belatedly in middecade to achieve permanent reductions, used both indefinite layoffs and special incentives for early retirement. The latter mechanism was preferred for all sorts of reasons: not only did it better serve the corporate image in local-community relations and maintain a cooperative stance by the union; it was also less expensive. The contract required payments to GM's workers whether they were working or idle. Retired workers were paid at a rate that was roughly one-half the rate of the wage bill. Moreover, whereas wages had to be fully funded from current revenues, pension benefits were paid from a trust fund, which could be (and was) substantially underfunded relative to liabilities. Although it was impossible to know how many workers would have retired when they did, had the special incentive

Some Matters of Context

45

programs not been on offer, experience suggested that the programs were having some effect. In 1984, for example, about 7,000 GM workers elected early retirement; in 1986, 13,000. Further growth in those numbers was clearly in the interest of both the union and GM management, and so the 1987 agreement expanded the incentives of the Special Early Retirement Plan. Obviously no one knew exactly how many workers would be enticed by the incentives, but according to public reports at the time (e.g., Zellner with Bernstein 1987) approximately 35,000 of GM's workers were expected to qualify under terms of the program. The hope was that all or most of those 35,000 would elect to leave, since each who did leave could be subtracted from GM's secured employment level (SEL) of 315,000 workers without replacement.

NOTES 1. Part of the variation has been a function of different eligibility ages for state pension schemes. For instance, in 1983 only a third of the men aged 60 through 64 were labor force active in France, where the eligibility age was 60. On the other hand, the eligibility age in the Netherlands was 65, yet participation rates among men aged 60 through 64 fell from 74 percent in 1971 to only 25 percent in 1989; and among men aged 55 to 60, from 87 to 67 percent (Fiji 1991). 2. Vesting periods were limited to a choice between 100 percent vesting after 5 years (not 10, as prior to 1989) or 20 percent vesting after 3 years followed by 100 percent vesting after 7 years (Clark and McDermed 1990). 3. A more detailed discussion of actuarial reduction and related features of a DB plan is presented in Chapter 3. 4. Real contributions to pension plans by private-sector employees fell 36 percent during the 1980s. This appears to have been due not only to the shift from DB to DC plans but also to the growing use of the 401 (k) version of the DC plan—defined by Section 401 (k) of the 1978 Revenue Act—which allows participation on a more voluntary basis. Young workers are less likely to participate (Even and Macpherson 1994). 5. By 1920 the ITU, the United Mine Workers, and a few other unions were passing resolutions calling for the establishment of state pension systems or even a comprehensive national system. 6. Graebner (1980, pp. 127-128) quotes from an advisor's letter to Coleman du Pont, 1914: "I never heard of any plan except one that would assist in regulating salaries and that is a pension plan. If you people have not any such plan in operation, I strongly urge you to get busy and adopt one. The right sort of pension plan comes pretty near being a panacea for most of the ills that exist between employer and employee." 7. According to the results of the survey by the National Industrial Conference Board (1925, p. 72), about two-thirds of the plans which connected pension eligibility to a mandatory retirement age stipulated age 70 for men; nearly all of

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Chapter 2

the remainder stipulated age 65. Mandated ages for female employees were sometimes younger. 8. In fact. Ford's fabled notion was itself mostly fable; few of Ford's cars were sold to his own blue-collar workers (see Foster 1988). 9. Senior workers with fewer than 30 years could retire as early as age 55 if the combination of years of age and years of service totaled at least 85. We explain these provisions in more detail in Chapter 3. 10. By 1994 the average employment figure had climbed to just over 850,000 (or about 15 percent less than the 1978 total), but much of this recovery occurred in "the Japanese transplants/' i,e., in U.S. plants owned by Japanese auto makers. Between 1978 and 1993 hourly wage jobs in GM, Ford, and Chrysler assembly plants dropped from 740,000 to about 400,000 (Katz and MacDuffie, 1994, p. 191). 11. As Wendling (1984, p. 11) noted generally, since "the reasons cited for closure in surveys and in court cases" often involved claims about excessive labor costs and work rules, the issues tended to be "amenable to resolution through collective bargaining." But often they were not. Bear in mind that under "job control" unionism only issues mutually regarded as negotiable were typically put on the table during bargaining sessions. The impact of plant closures on union strength extended beyond the auto industry, of course, and began before the 1980s. Schmermer's (1983) survey of Fortune 500 companies during the 1970s found that, whereas 52 percent of all of the facilities were unionized, 66 percent of the facilities that closed were unionized. The discrepancy was partly due to the fact that most of the closures occurred in mass-production industries, where historically the union movement had been most successful. 12. For example, the "open shop" or "American plan" movement of the 1920s involved initiatives designed to demonstrate that workers' rights of independent free association with respect to work place conditions were unnecessary (Bendix 1956). During the 1930s GM experimented with a number of "employee involvement" programs and utilized a "familial" rhetoric in efforts to socialize workers to company interests (see Fine 1969). During the 1950s and 1960s Douglas MacGregor championed a management theory ("Theory Y") that emphasized "employee involvement," and W. E. Deming promoted integrative schemes with missionary zeal over a long period of time, though to much better reception in Japan than in the United States. Resistance to the use of such schemes has often come from within management itself. For example, one GM official avowed—in a "give them an inch and they'll take a mile" argument— that QWL programs threatened management prerogatives (Fitzgerald 1971). 13. During the 1980s the heads of GM (Roger Smith) and the AFL-CIO (Lane Kirkland) were in agreement that the NLRA and its Labor Relations Board had become anachronisms and impediments to the development of new forms of labor-management cooperation (Clark 1989, pp, 250-251). 14. According to Clark's (1989, pp. 11-20) study, union successes in NLRB representation elections actually increased in the southern states during the 1980s, although the total number of contested elections continued to decline there as in other regions. Clark's data demonstrate that the historic "southern pattern" in employment relations was becoming the national pattern.

Some Matters of Context

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15. The 1985 agreement for GM's Saturn Division plant in Tennessee (a right-towork state) provided 80 percent of the workers with job guarantees. The remaining 20 percent were defined as "associate members" of the union and lacked job guarantees (Jacobs 1994). Thus began the two-tier system of employment. 16. Whereas employment by nonunionized independent auto parts suppliers in the United States grew by one-third between 1978 and 1989, it declined by one-half among independent suppliers who were unionized and by one-third in the auto makers' own parts facilities (Morales 1994, p. 84).

3 The Financial Structure of Early-Retirement Pensions

BENEFITS AND INCENTIVES In popular imagination the idea of a "pension benefit"—whether the benefit payments of a private-pension scheme or those of a public scheme such as Social Security—most often elicits images of "reward" and "old-age security." The benefit of a pension is thought to be, at the individual level, a more or less proportionate reward for having completed a "productive work life" and, at the population level, a means of alleviating the risk of old-age poverty. That thought is correct so far as it goes—though the tendency sometimes is to confuse the "reward" aspect with a free good and to assume that "old-age security" is only a matter of money income. But the benefit of a pension—and here we must restrict the point to employer-provided defined-benefit pension schemes—redounds not only to the individual recipient and the population of recipients but also to the employing firm. In the case of defined-benefit pension plans, employers typically design the benefit schedule as an instrument of relative incentive, used to achieve certain policy goals in the regulation of the firm's internal labor market. When designed and implemented accordingly, the instrument of incentives can achieve an increase in employee attachment ("loyalty") during certain spans of "career age" and then an increase in employee exits during later ages. After joining the labor force of a firm, a new employee typically enters what amounts to a kind of "probationary period"—a period of trial and error, "training to the job," and so forth. From the firm's point of view, employee loyalty is being built and tested: some employees quit or are fired; those who survive the selection process embody investments by the firm (training costs, loyalty costs, etc.), which are roughly proportionate to the skill level of the employee. The contractual relation (whether based on 49

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mutually genuine consent or simply on compliance or acquiescence), though formally symmetrical, assumes subordination of each employee's interests to the interests of the firm (i.e., the institution of private or intrafirm law, limited by institutions of public law such as the Age Discrimination in Employment Act). At some date enough seniority (i.e., loyalty) has been achieved to justify (from the firm's point of view) a longer-term investment in the employee. In terms of a firm's defined-benefit pension plan, that date is signaled by vestment rights: the employee has satisfied minimum requirements of the pension plan and now begins to accrue assets in the plan, a form of deferred compensation. From this date forward, it is in the firm's interest (ceteris paribus) to reinforce employee loyalty. ^ Various means are available. One is to pay "efficiency wages" (i.e., a wage rate higher than the prevailing market rate). Another is to distribute wage-rate compensation unevenly across the full tenure of a career. Third, loyalty can be reinforced by slowly adding value to the employee's pension-benefit account (i.e., graduating the deferred compensation). Theoretically each of these approaches should enhance loyalty. To some extent they are compatible with, even complementary of, each other. For instance, the second approach is less capable than the third, in the absence of mandated retirement ages, of inducing an abrupt shift from loyalty to exit. In effect, by adopting the second approach the employer has implicitly struck a long-term "tenure contract" with the postprobationary employee, centered on a wage schedule that disproportionately compensates high seniorities at the expense of low seniorities. Consider the theoretical model depicted as Figure 3.1, where V(t) is the value of a worker's marginal product at various tenure lengths, Wj^(t) is the minimum wage schedule at which the employee will sell labor-time to the employer (i.e., the employee's "reservation wage"), and W(t) is a wage schedule according to which the present value of wages paid during an entire tenure equals the present value of the employee's marginal product during that tenure.^ During early years of tenure the value of W is less than the value of V, though by declining differences; during later years of tenure the value of W is progressively greater than the value of V. The assumption is that postprobationary employees will continue employment with the given firm until date T, the tenure date at which the undercompensation during early years has been equalized by overcompensation during later years, which is also the tenure date after which the employee's reservation wage (Wj^) exceeds the value of his or her marginal product. Thus, T defines the efficient date of retirement from the employer's point of view. But from the employee's point of view, continuation of employment after T would be preferable (ceteris paribus); consequently, in absence of a mandatory retirement age or similar constraint, the employee is inclined to postpone retirement to a date later than T.

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W(t)

W„(t) V(t)

Figure 3.1. A theoretical model of a wage schedule.

The third approach provides that constraint even in the absence of a mandatory age. The implicit tenure contract includes provision for deferred compensation in the form of a pension benefit, with a graduated schedule of asset accrual in the employee's benefit account. The rate of accrual is very slow during early and middle tenure years. But during later tenure years, as the firm's interest shifts from inducing loyalty to inducing exit, the rate at which asset is added to the now senior employee's pension account rapidly accelerates. Then, at date T (or at some related date at which the firm prefers exit to continued loyalty), the rate of accrual collapses to zero or even turns negative. Continued employment much beyond that date will mean that even though the worker would receive wage earnings exceeding his or her current (or even tenure-averaged) marginal product, the worker's total compensation will decline because of the zero or negative rate of accrual of deferred compensation (i.e., pension assets). This general framework can be applied to any number of employerpreferred retirement ages. Figure 3.1 assumes that the implicit tenure contract is negotiated early in the employment relationship, and the balance between the undercompensation and the overcompensation portions of the wage schedule assumes an exit at date T. By setting date T as the date at which the accrual rate in a "normal" pension plan collapses to zero, the em-

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ployer induces exits at a "normal" retirement age, as noted above. But an employer may also offer another pension plan, one in which the date at which the rate of accrual collapses to zero is earlier than T. Of course, no employee agrees at the beginning of the implicit tenure contract to retire early and thus exit before T. An employee who, later in tenure (and eligible for early retirement), does exit before T does so presumably because he or she has decided that (ceteris paribus) the deferred-compensation incentives of the early-retirement plan sufficiently offset that part of the overcompensation portion of the wage schedule that will be forgone by retirement. In effect, employer and employee have renegotiated terms of the implicit tenure contract. But features of that renegotiation can differ, depending on characteristics of the early-retirement plan. When the early-retirement plan has been part of the employment relationship since the beginning of an implicit tenure contract (i.e., a "regular" plan), the renegotiation option is routine and relatively free of coercive features, and the employee has ample opportunity to engage in anticipatory behavior (''getting ready to retire"). However, under certain circumstances (e.g., plant closings) an employer may conclude that the actual schedule of exit behaviors, even with the incentives of an early-retirement plan in operation, is less efficient or less rapid than desired, in which case the employer may prefer to offer a new option "on the spot," with the intent of accelerating the shift from loyalty to exit among current senior employees to an even earlier date prior to date T. Here the option of renegotiation—specific to a more or less narrowly defined set of "unusual" circumstances and offered for a limited time—approximates what is sometimes called a "spot market" form of exchange relations (as distinguished from a long-term or "tenure contract" form of exchange relations). By offering "special" added incentives (relative to the incentives of the "regular" early-retirement plan), the employer abruptly and greatly increases the value of assets in the employee's pension account. In effect, the rate at which recent years of service accumulated credits to the account is recalibrated, so that a given year of service late in the implicit contract is worth more in the spot market situation than would otherwise obtain. What might appear to be a "bonus" paid to the especially early retiree in return for the exit is compensation for the wage earnings relinquished because of the especially early exit. Just as with the other retirement plans, the asset value of the account sharply declines if the employee does not exit at or soon after the desired date. But in addition, given the unusual circumstances under which the special incentives are offered, this "spot market" option to renegotiate the implicit tenure contract will typically include some coercive elements (e.g., the threat of permanent job loss) and little opportunity for anticipatory behavior by the employee. The foregoing is a thumbnail sketch of the operation of pension plans such as those which have figured in the GM-UAW negotiated contracts.

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53

The sketch is oversimplified in some respects (corrected later in this chapter), but it serves well enough as an initial depiction of the financial-incentive structures that were built into the retirement plans at GM many years ago. The principal task undertaken in this chapter is an analysis of those financial-incentive structures, with particular reference to the early-retirement pension plans that were negotiated in the 1987-89 contract settlement. Because the retirement plans are characterized by a number of small but important distinctions in their financial-benefit structures, and because aspects of the financial analysis are somewhat complex, we have tried to simplify the presentation by imposing and following repetitiously throughout this chapter a sometimes arbitrary terminological regimen, albeit at some cost of monotony. For readers who are not acquainted with the work of actuaries or financial analysts and who do not have some familiarity with the internal structure of typical employer-provided defined-benefit retirement plans, there will be distinctions enough without having to wonder whether a substitution in wording signals intended difference or assumed synonymy. Thus, for example, we will refer to the set of plans as the "GM retirement plans," even though essentially identical plans were part of the negotiated contracts with Ford and Chrysler as well. Likewise, we will use the phrase, "employer-provided plans," even though the plans resulted from union-management negotiations and (since all plans herein considered are defined-benefit plans) the benefit payments amount to deferred compensation. The 1987-89 contract included two distinctive early-retirement plans: the Regular Early Retirement Plan (the older of the two) and the Special Early Retirement Plan; we will often refer to these by their acronyms, RERP and SERF. In addition, of course, the negotiated contracts have long included provisions of a Normal Retirement Plan (NRP) and a Disability Retirement Plan. Since the focus of attention in subsequent chapters is on the early-retirement decision, our analysis in this as well as in subsequent chapters largely ignores the Normal and the Disability Retirement Plans. However, because the calculus of decision making with respect to an opportunity of early retirement necessarily unfolded for all workers against the background of "normal retirement" provisions, our initial descriptions of financial characteristics of the plans will include some attention to the Normal Retirement Plan. As well, those descriptions will attend briefly to the financial characteristics of the plans in historical perspective—that is, from 1950 to the mid-1960s, the time of Barfield and Morgan's study, and thence to the 1987-89 contract, the immediate context of our subsequent analyses. To avoid confusions of changing vocabularly, we will follow the anachronistic practice of consistently referring to the Normal, Regular Early, and Special Early plans in just that nomenclatuire, despite the fact

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that the Normal Retirement Plan was for a time the only retirement plan and, then during a later period, the Regular Early Retirement Plan was the only employer-provided avenue for early retirement. THE GM PENSION PLANS The 1987-89 UAW-GM contract is a very complex, multivolume document. The portion that regulates the terms of retirement contributes its fair share to the complexity of the whole. Much of the complexity reflects the general historical trend toward greater formalization and legalization of substantive as well as procedural details of contractually regulated relationships. But a significant part of the complexity is due to increased differentiations within the financial provisions of employer-provided pension plans. As the various interests in early retirement were developed and formalized in union-management negotiations, for example, the formulas used to calculate pension-benefit payment schedules became ever more complicated. Perhaps, then, the best way to facilitate an accurate yet reduced description of the financial and related characteristics of the retirement plans is to begin with a brief developmental account. The Early Years In 1950, GM's pension plan for wage-rate employees—in effect, the Normal Retirement Plan—^had relatively simple financial provisions. Activatable at age 65, the monthly benefit was calculated as the product of a single "basic benefit rate" ($1.50 in 1950) and years of credited service, up to a maximum of 30 years (Marples, 1965). The provisions included periodic revisions of the basic-benefit rate, in accordance with general rates of inflation and wage-rate increases, for newly retiring workers; the revised basicbenefit rates were typically assigned to previously retired workers as well. Thus, in 1953 the benefit rate was raised to $1,75; in 1955, to $2.25; in 1962, to $2.80. In 1955 the 30-year ceiling on credited service was eliminated. By the time of Barfield and Morgan's study (i.e., the 1964-67 contract period), the pension-plan provisions had become considerably more complicated, both in the terms of eligibility and in the calculation of monetary benefits. On the one side, GM mandated retirement at age 68. The main features of the Normal Retirement Plan were unchanged, though the basicbenefit rate had been reaugmented. On the other side, qualified workers now had the option of early retirement (in effect, the Regular Early Retirement Plan). Any worker with at least 10 years of service could retire as young as age 60. Indeed, a worker as young as age 55 could elect early retirement if the sum of his or her age and service years totaled at least 85.

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This last provision, commonly called "The Rule of 85," is an important provision in the 1964-67 contract and in subsequent contracts. A brief description of the point of this provision, and of its relationship to another provision, commonly called "30 and out," will be helpful. The main point of the Rule of 85 is that it regulates early-retirement age by a seniority principle. Consider, for example, two 58-year-old workers, one with 26 years of service and the other with 27 years of service, contemplating an early retirement: the Rule of 85 gives priority to the more senior of the two workers. Note that at minimum eligibility age of 55, the Rule of 85 implies 30 years of service. In other words, eligibility for early retirement at that age— still a very young age for retirement during the 1960s—is reserved to workers who have very high seniority. This specific version of the Rule of 85 is known as the "30 and out" provision, which is assigned special significance in that it carries an automatic maximum monthly benefit. To repeat, then, imder terms of the 1964-67 contract a worker as young as 55 could elect early retirement if the sum of the worker's age and service years equaled or exceeded 85. Unless this worker had at least 30 service years, however, retirement prior to age 62 carried a penalty: the basic-benefit rate was reduced more or less in proportion to the number of years short of age 62. It was during the 1964-67 contract period, in other words, that GM initiated a two-tiered scheme for the calculation of early-retirement pension benefits. The first tier—which reproduced the concept of the "basic benefit rate," though with some modifications—consisted of a lifetime benefit component. The second tier, a new development stimulated by sensitivities to the age 65 provision of Social Security—consisted of a supplemental allowance component. The lifetime benefit component was calculated as the product of a basic benefit rate (which was now graded by age at retirement as well as by wage-rate) and years of service. The maximum basic benefit rate was set at $4.25 (i.e., $4.25 per month per year of service) for those retiring at age 62 or older; it decreased gradually as age at retirement declined, reaching $2.46 for those retiring at age 55 (the minimum-age criterion of eligibility). The supplemental-allowance component was added to the lifetime-benefit component for workers who retired prior to age 65. Payable until age 65, the supplemental allowance was calculated as the product of a "supplemental benefit factor" (which also was graded by age at retirement) and years of service up to a maximum of 30 years. Thus, for a worker retiring at age 60 or older, the sum of the lifetimebenefit component and the supplemental-allowance component amoimted to $13.33 per month per year of service; for those retiring at age 55, the sum reduced to $6.67; for those retiring at ages 56 through 59, the sum lay more or less proportionately between those limits. Since this Regular Early Retirement Plan, like the Normal Retirement Plan, included an elective provision for a survivor's benefit, the monthly benefit would have been slightly

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smaller than is implied by those total rates for any worker who chose to purchase the survivor's benefit.^ But, ignoring that factor, the summed rates imply that a worker retiring at age 62 with 30 years of service would have received a monthly benefit of $400 until age 65; after age 65 the supplemental-allowance component would have been deleted, reducing the monthly benefit to $127,50 (the difference being approximately supplied by Social Security). In effect and by design, then, the supplemental allowance offered a financial incentive to retire at an age younger than the "normal" retirement age of 65, and this incentive was graded by age and by seniority. In general outline, the foregoing description of the basic eligibility and benefit structures of the Normal Retirement Plan and the Regular Early Retirement Plan applies to the sequence of negotiated contracts following 1964-67. The benefit-rate schedules were periodically adjusted in order to keep pace with inflation and earnings growth; pension recipients gained periodic cost-of-living adjustments; and there were some other changes as well. But in general outline the two plans remained in the 1987-89 contract essentially as we have described them for the 1964-67 contract. The main differences in the retirement packages of the two contracts are, first, the development of a second early-retirement plan (the Special Early Retirement Plan)4 and, correlatively, some modifications in the way early-retirement benefits were actuarially adjusted. The 1987-89 Plan The retirement package for nondisabled workers in the 1987-89 contract contained three separate plans: the Normal Retirement Plan (NRP), the Regular Early Retirement Plan (RERP), and the Special Early Retirement Plan (SERP).5 NRP eligibility occurred at age 65, assuming the worker had a minimum of 10 years of credited service.^ The NRP monthly benefit consisted of two components, the lifetime-benefit component (as before) and a "special age-65 benefit." The lifetime-benefit component (common to all three plans) was calculated as the product of years of service and a basic-benefit rate which varied jointly by year of retirement within the contract period and by a "benefit class code" that was determined by the job classification (essentially the wage rate) held for the longest period of time during the 24 months immediately prior to retirement.^ The second component, the "special age-65 benefit," was designed to offset the Medicare Part B premium. Thus, for example, a worker who retired under NRP in 1989 at age 65 with 30 years of service received a basic monthly benefit ranging from $745.50 to $768.00 (depending on the benefit class code); adding the "special age-65 benefit," which for that retirement date was $27.00, yielded a total monthly

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benefit ranging from $772.50 to $795.00. Note that these values (and the values in all later illustrations) assume that the worker did not elect the survivorship option; if this option had been elected, the basic monthly benefit w^ould have been reduced by 5 percent (i.e., ranged from $708.23 to $729.60, plus the "special age-65 benefit''). The 1987-89 provisions of RERP were an updated version of the earlyretirement plan previously described for the 1964-67 contract. Workers aged 55 through 65 with at least 10 years of service, and workers of any age with at least 30 years of service, were eligible under RERP. Those who had completed the 30th year automatically qualified for the maximum monthly benefit under the "30 and out" provision; those who were short of 30 years qualified for proportionately smaller monthly benefits. The RERP benefit consisted of two components, as before: the lifetime-benefit component and the supplemental-allowance component. The lifetime benefit was calculated as the product of a basic-benefit rate and years of service—^just as under NRP, except that under RERP the basic-benefit rate was subject to an age-graded adjustment. A worker retiring via RERP at ages 62, 63, or 64 received 100 percent of the basic-benefit rate. For those who retired between the ages of 55 and 62, the basic-benefit rate was reduced by a small percentage (ranging between 5.6 and 6.7 percent) for each year of difference between retirement age and age 62. For example, those retiring via RERP at age 61 received 93.3 percent of the basic-benefit rate; at age 60,86.7 percent; at age 59,80.8 percent; and so on, down to 57.9 percent of the basic-benefit rate at age 55. However, for any worker who retired with a minimum of 30 years of service, or who otherwise satisfied the Rule of 85 (i.e., the sum of age and years of service equaled or exceeded 85), the full basic-benefit rate was restored once the retiree reached age 62. The supplemental-allowance component of the RERP benefit was, as before, restricted to workers who retired at ages younger than 62. Those who retired before age 62 with at least 30 years of service qualified for a supplement designed to raise their total monthly benefit to a specified maximum level; if such a retirement occurred on or after October 1,1989, for example, the specified level was $1,500 per month (i.e., the maximum possible sum of the lifetime benefit and the supplemental allowance was $1,500 per month). For workers who retired before age 62 with fewer than 30 years of service, the supplemental benefit was determined as the product of a supplemental-benefit rate (graded by age at retirement) and years of service. Under all circumstances, the RERP supplemental allowance was subject to three restrictions: it was payable only until the retiree reached age 62; the sum of the lifetime benefit and the supplemental allowance could not exceed 70 percent of the worker's preretirement monthly base earnings; and postretirement employment earnings in excess of a specified amount ($8,500 in 1988; $9,200 in 1989) were taxed at a marginal rate of 50

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percent (i.e., for every $2 in earnings above the ceiling, the supplement was reduced by $1). This third restriction terminated at age 62. Finally, we come to the Special Early Retirement Plan (SERF), which was designed to augment the attractions of early retirement under specified conditions and to enhance the flexible use of early retirement as a means of managing problems of "excess" labor supply in the internal labor market. Part of that design was manifested in some differences in the regulation of eligibility. Under SERP, workers as young as age 50 (rather than RERP's stipulated age 55) could apply if they had accumulated at least 10 years of service and if they were, or were soon to be, laid off because of a plant closure (and there were no other plants "in the same labor-market area," the latter as defined by the given state's Employment Security Commission) or if company management otherwise offered a "mutually satisfactory" opportimity to retire xmder the Special Plan.^ Whereas eligibility imder RERP was routinely defined and virtually automatic once a worker had satisfied the minimum age and seniority requirements, eligibility under SERP was more flexibly defined and was for all practical purposes regulated as "company option," in the sense that management defined the opportunities and reserved rights of approval. The monetary benefit available to workers who retired under SERP contained some of the features of the RERP benefit and some different features. The SERP benefit consisted of three components: the lifetime-benefit component, a temporary-benefit component, and a supplemental component (though this last component was empty in certain cases, as explained below). The lifetime-benefit component of SERP was the same as the lifetime-benefit component of RERP, with one important difference: SERP retirees received 100 percent of the basic-benefit rate (multiplied by years of service) regardless of age at retirement. The temporary benefit—similar in form to RERP's supplemental allowance (though different in rate structure)—was calculated as the product of years of service (up to a maximum of 30) and a "temporary benefit rate" which ranged from $19.20 for retirements initiated during the year beginning October 1,1987, to $21.40 for retirements initiated during the year beginning October 1, 1989. However, the temporary-benefit component had a ceiling (ranging from $576 to $642, depending on retirement date), and it was payable only until the retiree reached age 62. Also, receipt of the temporary benefit did not entail any restrictions on postretirement employment earnings. The third component of the SERP benefit, a supplemental allowance, applied only to SERP retirees who left with at least 30 years of service; they qualified for a supplement if and insofar as the sum of the lifetime-benefit component and the temporary-benefit component did not equal the standard "30 and out" maximum benefit provided under RERP (i.e., $1,500 for retirements initiated during the year beginning October 1, 1989). This supplement was subject to the

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same marginal tax on postretirement employment earnings as applied under RERP. Also as in the case of RERP, the sum of all components of the monthly benefit under SERP could not exceed 70 percent of the worker's preretirement monthly earnings. EVALUATING THE FINANCIAL INCENTIVES In principle, any senior worker who has satisfied or is on the verge of satisfying the eligibility requirements of an early-retirement plan faces a sequence of decisions: Should I elect early retirement now, in this period (i.e., this year), or should I wait until the next period (or the nth next period)? In practice, the deliberative process is no doubt neither that uniform across all eligible workers nor, for many of them, quite so routinely periodic. At any given date, some portion of near-eligible workers will have already decided to leave, while others will have decided to "wait awhile," and still others will have decided to continue their employments until age 65 or later, or "as long as my health holds up," or "as long as I can," and so on. Likewise among those workers who are already well past the date of first eligibility. And of course all of these decisions—except for the completed decision to retire—can be and often are revisited again and again. But regardless which of those specific descriptions fits the deliberative process of any given worker (again, excepting the completed decision to take early retirement), each eligible worker does in effect engage in the sequence of periodic decisions, even if only by default. And at each period the worker's decision, whether virtually or actually made, carries certain financial implications. In Chapter 4 we will address issues concerning the impact of financial factors on the auto workers' actual early-retirement decisions. Here our concern is with a broader, descriptive account of the financial-incentive structures of the early-retirement plans. On the assumption that eligible workers, when actually deliberating the early-retirement question, included reasonably accurate information about the financial implications of leaving "now" rather than "later," we want first to know what those implications were. Or, to put the point in another way, given that the retirement plans were designed with temporally distributed sets of financial incentives which were expected to influence workers' decisions about the timing of retirement, we want to have some imderstanding of those distributed sets before attempting to assess the extent to which the workers' decisions were in fact influenced by them. In this context, "financial incentive" obviously refers to a relationship between the monetary value of the early-retirement pension benefit and the earnings gained from continued employment in GM's plants. But that

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relationship can be specified in different ways. The "present value"^ of the monthly (or yearly) benefit is a necessary starting point, and no doubt variation in that value is highly salient information in the decisional calculus; but it is only one side of the relationship. At minimum, we assume, the auto workers evaluated the present value of their expected benefits relative to the earnings income that would be replaced. This evaluation can be conceived as a gradient of substitution, at some point on which a threshold effect will occur: below the threshold, retirement is highly unlikely; above the threshold, retirement becomes increasingly likely. Indeed, in their study of auto workers Barfield and Morgan reported evidence of a threshold level of retirement income which most people seem to consider necessary to ensure a reasonably adequate postretirement living standard. Currently this level is about $4,000 per year; it is likely, though, that $4,000 is not an absolute figure, but one which reflects a current consensus about the minimum income necessary to provide reasonably comfortable living after retirement. Thus, the "threshold" level may shift upward over time as living standards generally rise— and this upward movement should be all the faster if price level increases are not kept within reasonable bounds (Barfield and Morgan 1970, p. 3). A standard approach to the measurement of that substitution threshold is the "replacement rate"—or the ratio of the expected pension benefits to the earnings forgone by retirement. The "replacement rate" threshold need not be uniform across all situations, of course; in fact, it typically is not uniform. Other factors, such as spouse's income, can affect the threshold value. In any given period an eligible worker deliberating the binary decision, "retire this period or wait until a later period," will presumably consider the replacement rate. However, the incentive features of the retirement plans here under scrutiny involve a good deal more than the expected amount of a monthly pension benefit in ratio to the current amount of monthly earnings from GM. In the first place, each of those terms of the replacement ratio represents a single period in a stream of income receivable over some definite but still unknown number of future periods.^o When workers deliberate the "now or later" decision, they presumably consider in some manner an expected trade-off between the two streams, since these streams are mutually exclusive. Second, each stream can be treated as having properties of wealth or asset holdings as well as having properties of income. When workers deliberate the "now or later" decision, they presumably consider in some manner the volume of wealth vested and accruable in the pension plan, relative to the volume of wealth potentially accurable from continued employment earrungs (i.e., private savings), with the understanding that (ignoring the probability of "dying on the job") a sub-

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stitution will begin at some future date. Third, the lifetime-payment schedule of a defined-benefit pension plan is necessarily informed by and regulated by one or another set of specific assimiptions or stipulations about life expectancy, rate of asset accrual, and actuarial fairness; and competing plans offered by a given employer (e.g., NRP, RERP, SERF) may be differently structured in those respects, depending on (among other factors) employer interests, or negotiated employer and union interests, in using the plans as instruments for managing labor supply in the internal labor market. When workers deliberate the "now or later" decision, they are presumably sensitive in some degree to the variable implications of those assumptions and stipulations. The preceding paragraph introduces several important factors in the financial-incentive structure of the retirement plans. They will be developed and utilized later in this chapter. For the moment, we simply emphasize the general point that whereas the replacement-rate approach to measuring financial incentives (and workers' responses thereto) assvones that workers are primarily concerned with pension benefits as immediate income replacement, an alternative approach, which assumes that workers are primarily concerned to maximize assets within a remaining-lifetime framework, better captures the incentive structures of the plans (see, e.g., Burkhauser 1979; Fields and Mitchell 1984a; Gustman and Steinmeier 1989; Ippolito 1986a; Kotlikoff and Wise 1989a, 1989b; Mitchell and Fields 1982; Quinn, Burkhauser, and Myers 1990). Whether this alternative approach also better represents the actual deliberation—that is, the decisional calculus—performed by workers when they evaluate the financial aspects of the ''now or later" decision is a separate, empirical question, which will be addressed in Chapter 4. But there is no doubt that it provides a much superior evaluation of the financial-incentive structures of the plan—and therefore (whether the decision maker utilizes the information or not) of the financial implications of a decision to retire "now" (i.e., in any given period) under any given retirement plan. In the remainder of this section we will work toward that evaluation developmentally, as it were, beginning with some simple comparative descriptions of the present value of monthly benefits. Comparing Monthly Benefits A preliminary and partial understanding of the relative incentives/disincentives of different early-retirement plans can be gained from comparisons of monthly benefits under two versions of the Regular Early Retirement Plan, the version initiated in the 1964-67 contract and the version contained in the 1987-89 contract. Our point of departure for these comparisons is Table 3.1, which contains sets of benefit rates applicable to

Chapters

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The Financial Structure of Early-Retirement Pensions

63

retirements at various ages under the contracts effective in 1961,1964, and 1989. Before proceeding with the illustrative comparisons, we should note some features of the table and the main assumptions behind these specific sets of benefit rates. First, the rates pertain only to versions of RERJP (i.e., the rates are not uniformly correct for the calculation of SERF benefits in 1989). Second, in 1961 pension activation could not begin until age 60, and the supplemental allowance had not yet been introduced. In 1964 eligibility for the supplemental allowance ceased at retirement ages older than 64 (in 1989, at retirement ages older than 61), and the allowance was payable until age 65 (in 1989, until age 62). Third, the left-hand portion of the table reports rates for the lifetime-benefit component of a monthly benefit; the right-hand side reports the sxmi of the lifetime-benefit rate and the supplemental-allowance rate. Fourth, the lifetime-benefit rates are adjusted for early-retirement age (e.g., at age 55 in 1989 the rate was 57.9 percent of the maximum rate of $26.50, or $15.34). Fifth, the combined rates (right side of table) are generally applicable to early retirement at seniorities younger than 30 service years; at 30 or more years of service the monthly benefit was automatically set at the maximum of $400 in 1964 (if retirement age was at least 60 but less than 65) and at the maximimi of $1,500 in 1989 (if retirement age was less than 62). Sixth, the rates are reported both in nominal terms and in terms of 1989 dollars.!^ Finally, the calculations on which the following comparisons are based ignore all future-year cost-of-living adjustments to the benefits and assume that the retirees did not elect the survivor's benefit option. Let's begin the comparisons by considering three hypothetical cases, each a retirement at age 60 after 25 years of service, but each during a different year, 1961,1964, and 1989. Name them Pat^^^j, Jesse^^^, and Lynn^^g^. In nominal-dollar terms, the monthly benefits compare as foUow: Peit^g^y $1.88 X 25 = $47.00 per month until death Jesse^^^: $13.33 X 25 = $333.25 per month until age 65, then $3.68 X 25 = $92.00 per month until death Lynn^^g^: $43.28 X 25 = $1,082.00 per month until age 62, then (under the Rule of 85) $26.50 X 25 = $662.50 per month imtil death In terms of 1989 dollars, the monthly benefits compare as follow: Patj^gji $7.33 X 25 = $183.25 per month until death Jesse^^^: $49.47 X 25 = $1,236.75 per month until age 65, then $13.66 X 25 = $341.50 per month until death Lynn^^g^: $43.28 X 25 = $1,082.00 per month until age 62, then (under the Rule of 85) $26.50 X 25 = $662.50 per month until death

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Relative to Patj^^j, it is clear, Jesse^^^ enjoyed a substantial advantage because of changes in the policy governing early-retirements. The advantage was twofold. First, the lifetime-benefit component had increased 86 percent (from $183.25 to $341.50) in constant-dollar terms. Second, the supplemental allowance, not available in 1961, paid Jesse^^^ a "bonus" which raised his or her total monthly benefit to 362 percent of the lifetime benefit each of the 5 years that counted as "early-retirement years" (i.e., from age 60 to age 65). Relative to Jesse^^^, Lynn^^g^ experienced a somewhat more mixed set of advantages. On the one hand, the lifetime-benefit rate had been increased 68 percent in constant-dollar terms (from $13.66 to $22.98); but since Lynn^^g^ automatically qualified for the maximum lifetime-benefit rate ($26.50) because of the Rule of 85, the improvement was an even greater 94 percent. On the other hand, the supplemental-allowance rate in effect in 1989, though still amounting to a "bonus" (which raised the total monthly benefit paid Lynnl989 to 163 percent of the lifetime benefit), was payable orUy to age 62 (not to age 65 as with Jesse^^^) and was proportionately less lucrative than it had been (having declined 53 percent in constant-dollar terms). Thus, during each of the 2 years that counted as earlyretirement years for Lyruij^g^ (ages 60 and 61) the total monthly benefit was actually 12.5 percent lower (in constant dollars) than it had been during each of the 5 years that counted as early-retirement years for Jesse-^^^ (ages 60 through 64). While one should bear in mind that the comparative figures we have just examined are specific to a particular combination of age and service years, two generalizable points can be drawn from the comparisons. First, the different benefit schedules in effect for Jesse^^^ and Lyim^^g^ contained some incentives in favor of early retirement in each case. Second, the incentives were somewhat weaker for Lynn^^g^ because the rules of eligibility had been changed in ways that encouraged early retirement at ages younger than 60 (the age at which we had each of the three workers retiring), and this liberalization of the eligibility rules was "paid for," as it were, by some changes in the structure of benefit rates. The trade-off between benefit rates and liberalized terms of eligibility can be illustrated in part by comparing, across contracts, the maximum allowable early-retirement benefits and the criteria under which the maximum benefits were payable. (Again, we are restricting the comparison to RERP.) In 1964 the maximum allowable sum of the lifetime-benefit component and the supplemental-allowance component was $400 per month, which translates to $1,486 in 1989 dollars. In 1989 the corresponding value was $1,500. In other words, there had been virtually no improvement in constant-dollar terms. However, in 1964 the maximum monthly benefit was available only to workers who had at least 30 service years and were at

The Financial Structure of Early-Retirement Pensions

65

least 60 years old (but younger than 65), whereas in 1989 the $1,500 maximum was payable to workers of any age, provided they had at least 30 service years. Further, while in 1964 the maximum benefit was payable each month for a total of 5 years (ages 60 through 64), in 1989 the maximum benefit, though payable only until age 62, could have been paid for a much longer period of time. Thus, while the constant-dollar value of the maximum benefit had remained virtually unchanged, the eligibility criteria that were in effect in 1989 made proportionately more workers eligible for early retirement and lengthened the allowable interval of early-retirement benefit payments. Workers with high seniority gained the most from changes in the terms of the Regular Early Retirement Plan. Let's recall our three hypothetical workers; assume that each retired not at age 60 after 25 years but at age 55 after 30 years (and note that either combination totals 85). P^^96i pi'obably would not have retired at that age even with 30 years of service, because in 1961 pension activation could not occur at ages younger than 60. Jessej9^4 would have received a monthly benefit of $200.10 ($6.67 X 30) until age 65 and $73.80 ($2.46 X 30) thereafter; the corresponding values in 1989 dollars are $742.80 and $273.90. Lyim^^g^ would have received a monthly benefit of $1,500 (the automatic maximum at 30 service years) imtil age 62 and $795 ($26.50 X 30) thereafter. Now compare these monthly benefits for our revised versions of JessCj^^^ and Lynn^gg^ (retiring at age 55 with 30 service years) with the corresponding constant-dollar monthly benefits for the previous versions of the two workers (retiring at age 60 with 25 service years). It is evident that the revision was advantageous to L5mn^9g9 but disadvantageous to Jesse^^^. For example, by retiring at age 55 after 30 years, rather than at age 60 after 25 years, Lynn^^g^ received $1,500 per month during the first 7 years of retirement (i.e., to age 62) rather than $1,082 per month during the first 2 years of retirement (i.e., to age 62). Conversely, Jesse^^^ received (in 1989 dollars) $742.80 per month during the first 10 years of retirement (i.e., to age 65) rather than $1,236.75 per month during the first 5 years of retirement (i.e., to age 65). The foregoing illustrations—although only a sampling of the many possible combinations of age and seniority criteria, and restricted to only one of the two early-retirement plans available in the 1987-89 contract period (the Special Plan introduces still more variations)—give a reasonably good initial picture of the financial incentives favoring early retirement. The picture is incomplete, however, primarily because it has been drawn

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only in terms of "single period" assessments of the present value of monthly benefits. It is time to shift our basis of assessment to the concept of pension wealth. Calculating Pension Wealth Imagine a time-line for a worker who was born in 1934. Assume this worker was hired by GM in 1959 at age 25; assume a life span of 75 years. 1934

1959

1989

I

I

I

Bom

Hired

55

1999

2009

\

\

I

60

65

75

The half-century between hiring in 1959 and death in 2009 can be divided into two periods, employment and retirement. During the years of employment, GM provides a total compensation package consisting of current wages, health and life insurance, and deferred compensation in the form of pension rights. Retirement means cessation of the current-wage compensation and (assuming the minimum-age requirement is met) activation of the defined-benefit payments. Because the lifetime-benefit portion of the latter is payable until death, the younger the age at which the worker retires, the longer the worker's remaining lifetime and the longer the period of benefit payments. Thus, the younger the age at retirement, the larger the total sum of benefit payments—unless the size of the annual benefit is actuarially reduced, that is, adjusted for the probable length of remaining lifetime (which, bear in mind, is a function of a knowable value, age at retirement, and a value estimable from age-specific life-expectancy tables, projected age at death). We have already seen one facet of the actuarial adjustments—namely, in the age-graded benefit rates described in conjunction with some of the preceding descriptions and comparisons of monthly benefits. Actuarial adjustments can be made in different ways (or not at all), in accordance with different goals. Adjustments designed to achieve what is conventionally termed "actuarial fairness" attempt to equalize the value of benefits paid to workers across different remaining-lifetime payment periods. In other words, an "actuarially fair" schedule of adjustments would result in a range of benefit payments so that neither workers who retire "early" nor workers who retire "late," relative to some "normal" retirement age, would be either rewarded or penalized for the decision to retire "early" or "late." Thus, if benefits are actuarially fair, the lower monthly benefits paid to early retirees over a longer period of time and the higher monthly benefits paid to later retirees over a shorter period of time will

The Financial Structure of Early-Retirement Pensions

67

sum to the same value. A firm that has wittingly agreed to an actuarially fair pension scheme has effectively announced that it is indifferent to the timing of the retirement transitions of its workers; the benefit structure of its pension scheme contains no inherent incentives or disincentives favoring or disfavoring retirement at any particular combination of age and service years (aside from minimum eligibility criteria). As we have seen in the preceding illustrations, the negotiated contracts have contained some provisions that tend in the direction of actuarial fairness. The lifetime-benefit component has been anchored by the stipulation of what amounts to a "preferred" age of early retirement: age 62 in both the 1987-89 and the 1964-67 contracts. Whereas an early retirement at ages 62,63, or 64 yielded a lifetime-benefit component calculated at 100 percent of the basic-benefit rate, an early retirement at ages increasingly younger than age 62 yielded lifetime-benefit components calculated at proportionately smaller percentages of the basic-benefit rate (e.g., at age 55 in the 1987-89 contract the basic-benefit rate was 57.9 percent of the maximum rate of $26.50, or $15.34)—though only if the retiree left with fewer than 30 service years. In short, for workers who had not achieved the 30th year of service the incentives in favor of early retirement were age-graded in the direction of actuarial fairness. In other respects, however, the structure of benefits contained some much stronger incentives in favor of early retirement which tended away from actuarial fairness. We noted just above, for example, the fact that for workers who had accumulated at least 30 service years the basic-benefit rates were not age-graded in the direction of actuarial fairness. Consequently, the younger the age of retirement at the end of the 30th (or later) year of service, the larger the sum of remaining-lifetime payments. Other strong incentives were provided in the Special Early Retirement Plan, which until now we have been neglecting. A partial appreciation of the relative incentives of the Regular and the Special Early Retirement Plans can be gained from comparisons of total annual benefits payable to workers leaving at the end of the 20th service year and to workers leaving at the end of the 30th service year, under each of two early-retirement plans, at each of two retirement ages, age 55 and age 60, in 1989. These comparisons are shown in Table 3.2 (as with all previous illustrations, the calculations assume that the survivor's benefit option was not taken).i2 First, consider the annual benefit that was payable until age 62 (the first row of each of the two panels in Table 3.2) and then the annual benefit that was payable from age 62 forward (the second row of each panel). In general, it is apparent that whereas annual benefits paid after 30 service years were indifferent by retirement plan and by retirement age (because at 30 years the maximum monthly benefit of $1,500 was automatic), the bene-

Chapter 3

68

Table 3.2. Comparing Annual Benefits and Pension Wealth 20 years of service

30 years of service

RERP

SERP

RERP

SERP

Retirement age = 55 Annual benefit At ages < 62 At ages 62+ Pension wealth

$5,938 $3,682 $7430

$11,496 $6,360 $134,379

$18,000 $9,540 $205,017

$18,000 $9,540 $205,107

Retirement age = 60 Annual benefit At ages <62 At ages 62-1Pension wealth

$10,386 $5,514 $87,973

$11,496 $6,360 $100,055

$18,000 $9,540 $150,030

$18,000 $9,540 $150,030

Note: Pension wealth is the present discounted asset value of the benefit entitlement at specified retirement age (see text for assumptions).

fits paid after only 20 years of service varied rather dramatically by retirement plan, especially at the younger age. Obviously, leaving w^ith 30 years v^as better than leaving with 20 years regardless of plan, at either retirement age. However, the 30th-year advantage was greater under RERP, because SERP's incentive structure was more strongly skewed toward younger retirement ages (i.e., SERP had been designed to accelerate the flow of early retirements, relative to the flow via RERP). Thus, whereas a RERP retirement after the 20th year paid considerably less in initial annual benefits if it occurred at age 55 than if it occurred at age 60 ($5,938 versus $10,386), a SERP retirement after the 20th year paid the same at age 55 as at age 60 ($11,496). The point, of course, is that virtually no one retired via RERP at age 55 with only 20 years of service; the annual benefit was simply too low. But the additional provisions built into SERP made a 20th-year retirement at age 55 as attractive as a 20th-year retirement at age 60 (and slightly more attractive than a 20th-year retirement at age 60 under RERP), thus increasing the likelihood that 55-year-old workers would elect early retirement even when they were well short of the 30th year of service. These annual-benefit comparisons suggest that the main factor accounting for differences of financial incentive was length of service, and that the age at which retirement occurred was a relevant factor in differences of financial incentive only when retirement occurred under the RERP before the 30th year of service. In fact, that was not true, since younger ages at retirement imply longer periods during which benefits are paid. But in order to appreciate the importance of age as well as length of service, and their relative impacts under the two plans, we need to shift attention from

The Financial Structure of Early-Retirement Pensions

69

the present value of annual (or monthly) benefits to the present value of pension wealth. Thus, consider the third row of each panel in Table 3.2: in general, the younger the age at retirement, and, separately, the greater the seniority, the larger the present value of pension wealth. For any given worker, there is a necessary trade-off between age and seniority; one cannot increase the latter without increasing the former. But that trade-off carried different implications in the different incentive structures of the two early-retirement plans. One illustration of the difference is shown in Table 3.2: a worker who retired imder SERF at age 55 after only 20 years of service had almost (90 percent) as much pension wealth ($134,379) as a worker who retired under RERP at age 60 after 30 years of service ($150,030). Pension wealth is a function of several variables: (1) the real (i.e., inflation-adjusted) armual benefit during each remaining-lifetime year, that is, during each year from date of retirement to death; (2) age at retirement; (3) the age-specific probability of surviving the next year; and (4) the real (i.e., inflation-adjusted) rate at which each future year of remaining lifetime is discounted—that is, the real rate at which future consimiption (or, more generally, future utilities) is (are) discounted relative to current consumption (utilities). 13 Our calculations of pension wealth at date of retirement (i.e., the total expected value of any given worker's pension-benefit income stream), in Table 3.2 and in all subsequent presentations in this and later chapters, are therefore based on the following expression: pension wealth = X{p.V)/{l + r)i where the summation is from age at which benefits are initiated (usually the age at retirement) to age 100, p. is the probability of survival to the next year of age,i^ V is the real value (1989 dollars) of the annual benefit at any given age, r is the real discount rate (set uruformly by standard assumption as .0275), and ; is the difference between the age at which each projected annual benefit would be received and age at benefit activation. Because the projected stream of pension-benefit income is an asset, and because the size of that asset is adjusted for the discount and is expressed in terms of its value at retirement, the calculated value is often called the present discounted asset value of pension wealth. We will hereafter use "pension wealth" and ''present discounted asset value" (or PDAV) interchangeably. The significance of pension wealth in a logic of incentive or in a logic of decision making must be approached in terms of asset maximization. For any given worker contemplating the decision, "retire now or retire later," the key financial question about the pension plan is: "At what retirement age will my pension wealth be greatest?" Or, at any given age after eligibility the question is: "If I defer retirement 1 more year, will my pension wealth become greater, remain the same, or decline?"^^ Therefore, the ques-

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tion whether to "retire now or retire later," conceived as a question of asset maximization, is really a question about the profile and rate of pensionwealth accrual. Accrual Profiles Different types of pension plans have different accrual profiles. Consider the difference between a defined-contribution plan and a definedbenefit plan. Whereas a defined-contribution plan is consistent with a short-term contract (or "spot market") approach—an employer's pensionrelevant responsibility is wholly satisfied once the contribution is paid—a defined-benefit plan is consistent with a long-term contract approach in that the employer pledges to pay a specified benefit during some future period. The rationale for preferring the long-term over the short-term arrangement is that with the former an employer can distribute compensation over the employment career and beyond, as a means of structuring worker incentives, including incentives to remain with the employer. The different arrangements are typically reflected in different accrual profiles. The typical accrual profile in a defined-contribution plan tends to be rather smooth (as with the returns on principal in a savings deposit account), but the accrual profile in a defined-benefit plan is often quite jagged and can display decreases (negative rates of accrual) as well as increases (positive rates of accrual). A number of studies (e.g., Kotlikoff and Wise 1989a,b) have demonstrated that defined-benefit plans are often characterized by "backloading." That is, the rate of accrual is low until the years immediately preceding age of eligibility for retirement ("early" or "normal," depending on the plan) approaches; as that age approaches the accrual rate increases dramatically. Then, after the age of eligibility, the accrual rate decreases, often sharply, and can even become negative. This sort of accrual profile means, in effect, that a tax is being imposed on employment earnings after a particular age: earnings are partly offset by a loss in pension wealth. Thus, in the case of an early-retirement plan, since pension wealth accrues more and more rapidly as eligibility age approaches, and then accrues negligibly or even declines after that age, employees subject to that plan will have an increasingly substantial incentive to remain loyal to the employer as they approach the intended "early-retirement age" and thereafter will have a strong incentive to retire. This latter incentive—an employment disincentive which often exceeds the disincentive associated with the "earnings test" of Social Security—has been identified as a probable major factor in the trend toward younger ages at retirement (see, e.g., Quinn, Burkhauser, and Myers 1990).

The Financial Structure of Early-Retirement Pensions

71

The GM retirement plans are prominent instances of defined-benefit plans that use backloading. To examine the incentive features of backloading, let's look at some examples of accrual profiles. Assxmie three individuals were hired by GM in 1959—Bill at age 20, Robin and Ally each at age 30. Their accrual profiles are reported in Figure 3.2 (plotted by age) and in Figure 3.3 (plotted by years of service). The calculations underlying these profiles were made in accordance with the contractual obligations governing the monetary value of pension benefits imder the retirement plans. Bear in mind that any worker who left GM any time after accumulating 10 years of service was eligible to receive a pension benefit imder one of the plcms, but activation of the benefit payments could not occur until a minimum-age criterion had been satisfied (e.g., age 55 under RERP). This distinction is important because the present value of a benefit is dictated by the terms of

$ (OOOs) 300

—-

Bill

•~t—

Robin

-e-

Ally

Figure 3.2. Illustrative wealth-accrual profiles expressed as a function of age.

72

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the contract in effect at the time of departure, not the contract in effect on the date benefit payments are activated. In a world with static wages and no inflation that difference would not matter, but in the real world it matters a great deal. As can be seen from the comparative benefit rates reported in Table 3.1, "locking in" a benefit rate 20 or 25 years before the first benefit payment is receivable entails substantial disadvantage. For example, a worker who left GM in 1964 with only 10 years seniority would have "locked in" a maximum benefit rate of $4.25. If we assume that this worker had been hired at age 30, departed at age 40, but did not activate benefit payments until age 65, the $4.25 rate would have compared very unfavorably to the maximum rate of $26.50 that was in effect in 1989. Figure 3.2, which plots pension wealth against age, illustrates the value of pension wealth (i.e., accrual) associated with each additional year as an employee of the firm. Note that each observation corresponds to the value of the expected pension benefit eventually receivable by a worker who stayed with GM until the end of the given year of age, then promptly left the company. (The term "expected" refers to the fact that mortality probabilities have been incorporated in the calculation of pension wealth; in other words, the likelihood that the worker will be alive at each future age has been taken into account.) So long as the slope is positive, working the additional year at GM increases pension wealth. Once the slope flattens to a plateau, a worker continuing employment with GM at age A (or service year S) has exactly the same pension wealth at age A+1 (or service year S+1) as an identically situated worker who terminates employment at age A (or service year S); in other words, an additional year's work adds no compensation in the form of future pension benefits. Bill, hired at age 20 in 1959, begins building pension wealth at age 30. His accrual is slow but steady during the next 19 years. Then, from age 49 to age 50, at which time he has completed his 30th year of service and is eligible to retire under the "30 and out" provisions of RERP, Bill's pension wealth quadruples. Moreover, at each additional year beyond the 30th year loyalty to the firm costs Bill a portion of his pension wealth; net of all other considerations. Bill should choose exit over loyalty at age 50. Robin's profile is similar to Bill's, in that after 10 years of service (which for Robin occurs at age 40) pension wealth accrues slowly but steadily during the ensuing years. Note, however, that Robin's profile includes a disproportionately large annual increment from age 54 to age 55, which is the minimum retirement age under RERP for workers short of 30 service years (as Robin is at that date). This increment constitutes a sizeable incentive in favor of an early retirement, though it does not compare all that well with Bill's "30 and out" incentive. Assuming Robin at age 55 delays retirement, the accrual resumes a slow but steady pace until age 59, at which date 1 additional year of service adds another (albeit smaller) dis-

The Financial Structure of Early-Retirement Pensions

73

proportionate increment, since at age 60 Robin will qualify for "30 and out." Note that even though Robin at age 60 and Bill at age 50 will each have qualified for a "30 and out" retirement (which carries exactly the same maximum monthly benefit for each). Bill's pension wealth will be much greater. The reason is simply that Bill, having started the 30-year clock at a younger age, will have a longer remaining lifetime after his 30th year during which to receive the monthly benefits. Finally, consider Ally's profile, which assiomes retirement under SERF. Like Robin, Ally was hired in 1959 at age 30 and thus accrued pension wealth at exactly the same rate as Robin until age 55. But because (by assumption) Ally was able to retire under the Special Plan, the increment associated with the 1 additional year from age 54 to age 55 was considerably larger, the reason being that SERP retirements were not subject to an actuarial reduction in benefit rate for years short of age 62. Moreover, on the assumption that Ally passed a SERP opportunity at age 55 but continued to have a SERP opportunity at each succeeding year, that relative advantage was retained (though of course at a diminishing rate, since the actuarial reduction under RERP decreased with each added year of age). At age 60 Ally also qualifies for a "30 and out" retirement, after which date the accrual profile again exactly matches Robin's profile. Figure 3.3, which displays the same three accrual profiles but by seniority rather than by age, provides a complementary perspective on the accumulation of pension wealth. The patterns of accrual in each profile are the same as in Figure 3.2, of course, but the juxtaposition of profiles by years of service rather than by age makes clear the trade-off between age and seniority. All three profiles have identical accruals until Service Year 25. At that date Bill is age 45 and not yet eligible for early retirement; so his accrual after Year 25 continues at the same steady rate. But Robin is age 55 and thus eligible under RERP. Because of the probable difference in remaining lifetimes, Robin's pension wealth is greater than Bill's at the end of Year 25 and becomes increasingly greater with each succeeding year until Year 30, at which date Bill's pension wealth quadruples. It should be especially clear from Bill's profile that the younger the age at which a worker completes the 30th service year the greater the present discounted asset value (PDAV) of his or her defined benefit. On the other hand, a comparison of profiles for Bill and Robin also shows that it pays to delay retirement under RERP until the 30th year, even though the effect of that delay on pension wealth (PDAV) is sensitive to the age at which Year 30 is completed (which is, of course, highly correlated with age at hiring). By the same token, a comparison of profiles for Robin and Ally (who, again by assumption, can retire via SERP) shows that z/retirement occurs after only 25 service years (for example), it pays to do so under the terms of SERP, assuming the opportunity is present.

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$ (OOOs) 300

25 30 Service Years -»— Bill -T— Robin

-e-

Ally

Figure 3.3. Illustrative wealth-accrual profiles expressed as a function of service.

PENSION CHARACTERISTICS OF THE SAMPLES In the preceding discussions we have sought to provide an understanding of the comparative financial-incentive structures of the two earlyretirement plans by focusing on a few illustrative cases. It is now time to shift our focus to some summary descriptions of the actual pension-benefit characteristics of our samples of retirees and older workers. For the retirees, the summary descriptions are based on individual characteristics at the time of retirement—for instance, age at benefit activation (which, in the nature of the sampled population of retirees, is always age at retirement), the value of the annual benefits at activation, the present discounted asset value of the expected stream of benefits under the assumption that the real value of the monthly benefit would be preserved in future negotiated adjustments,!^ and so forth. For the workers who had not retired by the end of

The Financial Structure of Early-Retirement Pensions

75

the 1987-89 contract period, the summary descriptions are based on individual characteristics under the counterfactuai assumption that RERP retirements were taken at the end of the contract period. Across all respondents, the mean benefit at retirement was $928 per month, or $11,140 per year. Relative to the respondents' preretirement or (in the case of the nonretired workers) current GM earnings income, that mean benefit translated into a mean replacement rate of .34. The mean lifetime benefit (i.e., the benefit component that remained in place after age 62) was $599 per month, or $7,187 per year, which translated into a mean replacement rate of .22. The mean PDAV at retirement was just over $130,000. Although a useful point of departure, those pooled-sample means mask considerable heterogeneity, primarily because the benefit formulas differed by type of plan and by seniority relative to the 30-year mark, and because of age sensitivities of the two plans. Table 3.3 presents some distributional statistics within the separate samples, controlling for the binary difference in seniority. These statistics afford some preliminary insights into how the two plans operated on a population basis. Four main points are worth noting.

Table 3.3. Benefit Characteristics of the Samples, by Labor-Force Status, Retirement Plan, and Seniority: Means (Standard Deviations) Retired via RERP

Retired via SERF

Not retired

<30

30+

<30

30+

<30

30+

Current age

59.9 (3.4)

56.7 (4.9)

58.7 (2.4)

58.9 (2.2)

56.8 (3.5)

57.3 (3.8)

Age at retirement-

58.7 (3.5)

55.7 (5.7)

56.9 (2.3)

57.2 (2.2)

—

—

Service years

22.0 (6.6)

32.8 (3.4)

22.0 (4.8)

36.2 (3.4)

20.7 (6.5)

34.9 (3.6)

Annual benefit at retirement (000s)

8.5 (3.8)

16.0 (2.6)

10.9 (2.5)

16.9 (0.7)

6.3 (3.2)

16.8 (1.5)

Replacement rate at retirement Annual lifetime benefit (000s) Replacement rate of lifetime benefit Pension wealth (000s)

.27 (.12) 5.4 (2.2) .17 (.07) 91.1 (31.3)

.52 (.17) 9.2 (1.0) .30 (.10) 199.6 (44.5)

.38 (.13) 6.1 (1.3) .21 (.07) 123.3 (31.9)

.57 (.27) 10.1 (1.0) .34 (.17) 196.7 (21.6)

.19 (.11) 4.4 (1.9) .14 (.07) 75.2 (28.5)

.51 (.09) 10.8 (1.1) .33 (.06) 190.5 (29.4)

Note: For the workers not yet retired, the benefits, replacement rates, and pension wealth were calculated on the counterfactuai assumption of retirement at the end of the 1987-89 contract period.

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First, of course, the most striking comparisons are by the binary difference in seniority. Retiring before completion of the 30th year was an expensive proposition when the only available avenue was the Regular Plan. For example, mean pension wealth among RERP retirees with fewer than 30 years was less than half the mean value among RERP retirees with 30 or more years. Second, the age-at-retirenient distribution was remarkably uniform and compact among the SERP retirees, regardless the binary difference in seniority and despite the fact that the total range in service years was rather large. By comparison to the RERP retirees, few were younger than 55 and few were older than 59. This compact distribution reflects the age structure of the financial-incentive package built into the Special Plan, but it may also reflect something of the pressures stemming from plant closures and layoffs, which were usually an intimate part of the opportunity to take early retirement under terms of the Special Plan. In any case, the fact that the age-at-retirement distribution was uniform across the two seniority groups of SERP retirees puts in relief an important facet of the actual operation of the Special Plan on a population basis—^namely, that even though the plan was designed to accelerate early retirements (and to some extent obviously succeeded in that goal), the design in practice still adhered quite closely to the principle of seniority as a regulator of worker queues. Thus, while the average SERP retiree who left with fewer than 30 service years received 64 percent of the annual benefit received by the average SERP retiree who left after the 30th year (i.e., $10,900 versus $16,900), as well as 63 percent of the pension wealth ($123,300 versus $196,700), he also had 61 percent of the total service years (22.0 versus 36.2 years).^^ Third, among all respondents who had completed at least 30 years of service there was relatively little difference in mean pension wealth by labor-force status or by retirement plan. Indeed, the more interesting comparison here is in terms of the standard deviation, not the mean: RERP retirees who left after 30 years were more heterogeneous in pension wealth than were either the corresponding SERP retirees or the workers who remained in GM's plants after the 30th year. This greater heterogeneity is largely a reflection of the fact that the RERP retirees were also more heterogeneous in age at retirement, and therefore in the probable length of remaining lifetime. As we saw in the case of Bill's profile in Figure 3.2 and 3.3, electing to exit under RERP's "30 and out" provisions as soon as possible was the best decision from the standpoint of maximizing the asset value of the defined benefit (which eroded rather quickly for each year of delay after Year 30). But the size of that maximized asset was very sensitive to age at retirement (i.e., at benefit activation), and any given worker had no control over that age variation in the asset implications of 30 service years.

The Financial Structure of Early-Retirement Pensions

77

Thus, as we see in Table 3.3, while the mean PDAV was highest among the '30 and out" RERP retirees ($199,600), variation around that mean was also relatively large. RERP retirees who reached the end of the 30th year at age 60 (for example) had much lower asset value in their defined benefits than did RERP retirees who completed 30 years at age 50. Fourth, it is apparent from the last column of Table 3.3 that for the majority of the auto workers the financial-incentive structure of the early-retirement plans was not sufficiently attractive by comparison to the financial and nonfinancial rewards of continued employment at GM. The nonretired workers who had passed Year 30 were on average slightly older in 1989 (i.e., "current age") than the corresponding RERP retirees were at retirement, and the two groups were similar in annual-benefit entitlements, in replacement rates, and in pension wealth. But what the minority found sufficiently attractive the majority did not. No doubt a major factor, perhaps the most important factor, accounting for that difference resides in the simple fact that the benefit income replaced on average only one-half of the current GM eanungs income. Even though the pension wealth of these workers eroded rather quickly with each year of GM employment beyond the 30th, most of these continuing workers had apparently decided that a reduction of current income by one-half (on average) was not feasible. In the third of the four points enumerated above we referred to the fact that when an eligible worker delayed retirement another year the delay necessarily entailed both another year of service and another year of age. That simple arithmetical constraint is significant for workers retiring before age 62 because of a complex set of trade-offs or interactions between age and seniority. In general, an additional year of service up to and including Year 30 has positive effects on the annual benefit at retirement and on pension wealth. But imder certain circumstances the implied addition of a year of age has negative as well as positive effects (e.g., a positive effect under RERP because the actuarial reduction for years short of age 62 will not be as large; a negative effect under either plan because the remairung lifetime during which benefit payments are made will be a year shorter). The balance between the negative and positive age effects, and between the total age effect and the seniority effect, can vary substantially from one worker to another, depending on the workers' specific circumstances in the trade-off. We saw some indication of that variation in the illustrative profiles in Figures 3.2 and 3.3. But we can better catch sight of the significance of the systematic interactions between the age and seniority determinants by examining the results of accrual on a population basis rather than on an individual basis. To that end, we turn now to an examination of the component determinants of pension wealth.

Chapter 3

78

Predicting Pension Wealth Table 3.4 reports regressions of actual pension wealth—that is, the present discounted asset value (PDAV) of benefit entitlements—separately for the RERP retirees and the SEPUP retirees, as a function of Age, Service Years, a binary variable capturing the category effect of the 30th year of service (hereafter designated "Thirty Plus")/ and an interaction between Age and Thirty Plus, which captures the main locus of the trade-off between age and seniority effects.^^ Note that the regression coefficients are reported in the top panel of the table, while in the bottom panel the effects of age and seniority have been evaluated for three combinations of values within each of the retirement plans. Note also that the specification of the interaction term can be interpreted either as the effect of age contingent on

Table 3.4. Pension Wealth as a Function of Age and Service SERF

RERP

Constant

431,210 (10,030)

-102,170 (18,820)

Age

-7,268 (172)

1343 (320)

4,703 (69)

3,402 (71)

Thirty plus

239,390 (14,350)

755,050 (19,030)

Age X Thirty plus

-4,081 (254)

-12,117 (322)

.98

.99

Service years

Adjusted R^

Evaluating combined effects of age and service Service Retirement via SERF Year 20 Year 25 Year 30 Retirement via RERP Year 20 Year 25 Year 30

Age 50

Age 55

Age 60

161,931 185,446 244,307

125,596 149,111 187,567

89,261 112,776 130,827

58,071 75,086 241315

67,286 84301 171,945

76,501 93316 138,575

Note: The evaluated combined effects of age and service include the constant term. The regression equation included a control for wage rate. AU coefficients are significant at p < .001.

The Financial Structure of Early-Retirement Pensions

79

the 30th year of service or the effect of the 30th year of service contingent on age. That is, if the equation is defined as PDAV = a + bjAge + b2Service Years + b3Thirty Plus + b^Age X Thirty Plus the contribution of Age is evaluated as biAge when Thirty Plus = 0, and as (bi + b4)Age when Thirty Plus = 1; likewise, the contribution of Service Years is evaluated as bjService Years when Thirty Plus = 0, and as b2Service Years + b3 + b^Age when Thirty Plus = 1. In either plan, the specification accounted for more than 98 percent of the variation in pension wealth. The effect of age was clearly very sensitive to the relationship between age and seniority, and this sensitivity differed slightly between the two plans. Among the workers who retired before Year 30, the net effect of Age was negative and rather large under SERP but positive though small under RERR This difference in sign is indicative of the fact that whereas the few RERP retirees who left before Year 30 were subject to the actuarial reduction in basic benefit rate for years short of age 62 (thus, those closer to age 62 were slightly better off in terms of the age effect, despite the fact that older ages at retirement implied shorter remaining lifetimes during which to receive benefit payments), the SERP retirees were not subject to that reduction (thus, the older they were, the shorter their remaining lifetimes). But among workers who retired after Year 30 there was no actuarial reduction in either plan; consequently, the age effect was uniformly negative and nearly identical in magnitude (i.e., —$11,349 for each year of age under SERP; -$10,274 for each year of age under RERP). Similarly, the magnitude of the effect of the 30th year of service was contingent on the age at which a worker completed that year. In general, each additional year of service significantly augmented penision wealth— somewhat more so imder the Special Plan because of the different benefit

80

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structure when service years totaled less than 30. And the "bonus" effect of the 30th year was generally quite substantial under each plan. But the size of that latter effect dimirushed with increasing age. Although any given worker was constrained to leave at the age implied by completion of Year 30, it is apparent that on a population basis the younger the age at retirement with 30 years of service the greater the pension wealth. The patterns of trade-off between age and seniority effects can be appreciated from the expected values of PDAV for a few combinations of age and service years (with the constant term included), shown in the bottom panel of Table 3.4. While these values are averaged across all retirees within a given retirement plan, they suggest a few general conclusions. First, delaying retirement reduced pension wealth for SERF retirees, regardless of age and seniority at eligibility for Special retirement. Second, delaying retirement produced greater pension wealth among RERP retirees if they departed before Year 30; but it produced a loss of pension wealth if they departed with 30 (or more) years. Third, the financial incentive to delay retirement until completion of Year 30 was stronger under RERP than under SERP. Fourth, the "backloading" effect tied to Year 30, designed to induce a shift in employee behavior from loyalty to exit, was quite substantial in each plan, though marginally greater for retirement ages in the early to mid-50s under SERP.

CONSEQUENCES OF DELAY It is to be expected that senior workers would respond heterogeneously to a given set of financial incentives designed to accelerate the schedule of retirements. An early-retirement benefit that pays as much as 50 cents on each dollar of current employment earnings will be judged as adequate by some but as inadequate by others, even when these others imagine possibilities of postretirement employment in "second-best jobs" as a means of supplementing the pension benefit. Some workers will display greater patience than will others when thinking ahead to the end of a career in the auto industry. Insofar as they think of retirement as a gratification, it will be a more or less happily deferred gratification. Whatever the particular reasons for "postporiing" that transition to some time beyond the initial date of eligibility for early retirement, however, the fact of delay carries implications within the financial structures of the set of alternative retirement plans. Depending on the particular plan and the characteristics of the worker at the time of the decision (implicit or explicit) to delay departure, the decision can entail gains or it can entail losses in benefit entitlements. As a final perspective on the financial-incentive structures of the earlyretirement plans, we consider the consequences of delaying the retirement

The Financial Structure of Early-Retirement Pensions

81

date by 1 year. Whereas the values presented in the bottom panel of Table 3.4 demonstrate patterns of effects averaged across all respondents characterized by specific combinations of age and service years, the values presented in Table 3.5 allow us to compare relative positions within some individual accrual profiles, on the assumption of an additional year of employment (using 1989 benefit rates, with no survivorship option). Before turning to those comparisons, a brief description of the organization of Table 3.5 will be useful. The table contains four panels, arranged by combinations of age and service years, with each panel internally ordered (by rows) by 1-year increments in age and service years. So, for example, the first row of the top panel pertains to workers who retired at age 55 with 20 years of service, while the second row assumes that these same workers waited an extra year, thus retiring at age 56 with 21 years of service. Each panel shows the corresponding profiles under RERP (left side) and SERF (right side). The values within each panel and within each plan are, respectively, the total annual benefit at retirement, the lifetime benefit (i.e., the portion of the total that continues after age 62), and pension wealth. Let's begin our comparisons with the top two panels of the table—that is, retirements at relatively young ages and at seniorities ranging in the early and mid-20s. First, it is clear that an additional year of age (thus, of seniority) resulted uniformly in an increased size of the annual benefit at retirement and of the lifetime benefit. For example, the 1-year increment from age 55 at 25 years of service to age 56 at 26 years of service was $1,290 (i.e., $8,713 - $7,423) in the aimual benefit at retirement via RERP and $575 (i.e., $14,945 - $14,370) in the annual benefit at retirement via SERF. Obviously, the delay was worth more under the terms of RERP. Note also, however, that the proportionate size of those increments was not uniform across plans or across additional years within a plan. More specifically, note that the yearly increments were greater under RERP than under SERF—indeed, enough greater that, whereas the loss of a year in the length of the remaining-lifetime payment period (a loss implied by the addition of a year in age at retirement) was more than offset by the gain in the size of the annual benefit imder RERP, thus resulting in greater pension wealth, the loss in payment period was not offset by the (smaller) increment in the annual benefit under SERF, with the result that pension wealth actually declined (though by very small percentages). In short, an opportuiuty to exit via SERF at these relatively young ages and seniorities carried a very substantial premium in terms of annual-benefit level and in terms of pension wealth; and, while delay in taking the opportunity modestly improved the size of the annual benefit, it modestly reduced the asset value of the benefit entitlement. Turn next to the third panel, which retains the same range of retirement ages but shifts the correlated service clock to years aroimd Year 30.

Chapter 3

82

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The Financial Structure of Early-Retirement Pensions

83

Three points are worth emphasizing (though the first of the three has been apparent in preceding tables). First, waiting to Year 30 made a much bigger difference in retirements via RERP than in retirements via SERF. Second, at Year 30 the two plans were equalized in their financial characteristics, and delay beyond Year 30 entailed a loss of pension wealth despite the continuing (small) increments in the lifetime benefit. And third, the loss in pension wealth resulting from a 1-year delay after the 30th year of service could be quite substantial. Consider a worker at age 56 with 30 years of service. Assume that by staying 1 extra year his GM earnings income increased 3 percent—from $35,000 to $36,050, or $1,050. But his loss in pension wealth was 3.8 percent, or $7,479. His net loss was $6,429, which means that he accepted a pay cut of 18.4 percent. Finally, consider the fourth panel, in which the range of service years just examined is retained but the correlated ages at retirement are oriented around age 62. Again, we see that the two plans are equalized at Year 30. The main story now concerns the impact of reaching age 62: even when that age correlated with the 30th year of service, the consequence of the year's delay (i.e., from age 61 to age 62) was a substantial loss in the size of the annual benefit at retirement (which was offset by the age 62 OASI benefit) and, more importantly, a significant loss in pension wealth (about 5 percent, or $6,540 under RERP and $6,923 under SERF). From that date forward a delay resulted in a small gain in the size of the lifetime benefit; but because the remaining-lifetime payment period was simultaneously diminishing, that small gain translated into a near-zero change in pension wealth. Table 3.4 puts in clear relief the exit-scheduling fincmcial incentives built into the two plans. The schedule of the Regular Flan was tied very strongly to the 30th service year, favored workers who had begim employment with GM at yoimg ages (the younger the age at Year 30, the greater the worker's pension wealth), and exacted a pension-wealth penalty if retirement was deferred beyond Year 30 (unless Year 30 occurred at age 62 or later). The Special Flan was designed to accelerate the financial implications of the seniority clock enough to create modest losses in pension wealth when exit dates were postponed after as few as 25 service years. This acceleration was limited by the continuing importance of the seniority principle as a regulator of internal-market allocations: the clock could not be accelerated so much that the pension-wealth implications of retiring via SERF at, say. Year 25 would equal the corresponding implications of the "30 and out" provisions of RERP. But the SERF premium was nevertheless quite substantial; and the pressures of impending plant closures and layoffs could be counted on as supplementary incentives. Of course, the consequence of delaying retirement an additional year did not always include a loss of pension wealth. Even under the terms of

84

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SERF, for instance, a worker who had completed Year 29 at an age younger than 61 could expect an increase in pension wealth (albeit a very small increase) from the addition of 1 extra year. Moreover, we should not lose sight of the fact that the benefit incentives were not the only financial consideration relevant to a worker's decision about the optimum date of retirement. Expected earnings from continued employment constituted an alternative incentive which in any given case could easily prevail. Indeed, nearly two-fifths of the auto workers who had not retired by the end of the 1987-89 contract period had already accumulated at least 30 years of service and therefore had passed the date of maximum asset value of pension wealth. The financial incentives of the pension plans were evidently not sufficiently attractive to offset countervailing interests. To investigate these issues, we turn now to an analysis of data pertaining to the auto workers' retirement decisions.

NOTES 1. Obviously this ceteris paribus condition covers many important heterogeneities. For instance, a firm will generally evince interest in reinforcing loyalty more or less in proportion to replacement costs; the lower the skill level the lower the firm's interest in reinforcing loyalty. 2. Our presentation of this model, which follows Lazear (1981), is simplified in a number of respects. For instance, by standard theory, wage equals the value of the marginal product only of the last person hired. Also, one could argue that wage schedules in firms (or, more probably, industries) in which cycles of layoff are expected already reflect an ex ante compensation for the higher risk of termination before date T (see, e.g., Abowd and Ashenfelter 1981). But the model nonetheless provides a useful framework for present purposes. There has been surprisingly little research on the alternative means of managing internal labor markets; but see Halaby (1986), Hutchens (1987), Gilson and Mnookin (1989), Ippolito (1994), and Allen, Clark, and McDermed (1995). For a review of "implicit contract" theory see Rosen (1994). 3. We will assume throughout this chapter, when calculating benefit amounts for purposes of illustration, that the survivorship option is not elected. That assumption fits the traditional family model of labor supply, wherein the husband tends to form expectations primarily in terms of his own remaining-lifetime consumption preferences, rather than in terms of the couple's joint utility (see Killingsworth 1983; Pozzebon and Mitchell 1989). In subsequent chapters, however, the calculations of actual benefit amounts reflect the retirees' actual decisions about the survivorship option. Since most of the retirees (regardless of plan) did elect the option, we assume when calculating benefit amounts for the married nonretired workers that they, too, would have elected the option. 4. We say "development" of a second early-retirement plan, because an initial version of the Special Early Retirement Plan was already part of the 1964-67 con-

The Financial Structure of Early-Retirement Pensions

85

tract. It was then a minor feature, accoxmting for only 3 percent of Barfield and Morgan's (1970, p. 269) sample. 5. Again bear in mind that we are ignoring the Disability Retirement Plan, the eligibility criteria for which were 10 years of service at ages younger than 65 and total, permanent disability for at least 5 months. Also, our discussion of the financial incentives of the retirement plans neglects the monetary value of employer-provided health insurance, which continued into retirement. Recent studies have shown that employees who are able to retain their health-insurance coverages under terms of employer-provided pension plans tend to retire earlier (Gruber and Madrian 1993; Gustman and Steinmeier 1993). At the time of our study the sampled population uniformly qualified for retention of coverage. 6. Retirement was not mandatory at age 65 (or at any other age); however, the employer reserved the right to enforce retirement after age 65 if the employee was deemed "unable to perform [his or her]work efficiently." 7. Creditable service was determined by the number of hours for which wages were received in a given calendar year. A minimum of 1,615 hours counted as 1 year; for paid hours below that, proportions of a year of service were creditable (e.g., hours from 765 to 935 coimted as one-half year). Other rules governed breaks in seniority, procedures for reestablishing seniority, the counting of hours during layoffs, and other contingencies. The four "benefit class codes" were determined primarily by the following schedule of base wage-rates: $14,045 or less; $14.05 through $14,265; $14.27 through $15.18; and $15,185 or higher. 8. Workers facing permanent layoff with fewer than the SERP minimum of 10 service years to their credit could elect a pension-buyout option under a Voluntary Termination of Employment Program (VTEP), which required only 1 year of credited service for eligibility. VTEP was also available to more senior workers who were permanently laid off, but the buyout did not compare well with SERP. The one-time VTEP payment ranged from a minimum of $12,000 at 1 year of service to $65,000 at 25 years of service. 9. An important terminological note: The "present value" refers to the monetary value of the pension benefit at activation (i.e., at date of retirement). We will shortly introduce a related concept, "present discounted asset value"; in this expression, too, "present" means "as evaluated at activation (i.e., retirement) date." 10. Indeed, while we will focus on only these two streams—future earnings income from GM and future pension-benefit income from the employer-provided plan—there are other more or less probable streams as well, such as earnings income from another job, eventual income from OASI, income from private savings (ranging from highly liquid forms such as ordinary savings accounts to less liquid forms such as home ownership), and so on. For a good discussion of relationships among some of these components, see Mitchell and Fields (1982). 11. These conversions are based on the implicit price deflators for personal-consumption expenditures, based on Table B3 of the 1991 Economic Report of the President. 12. The annual benefit for years prior to age 62 is calculated for RERP retirees as the sum of the lifetime benefit (actuarially adjusted for years of age short of 62

86

Chapters

when service years equal 20) and the supplemental allowance; for the SERF retirees, as the sum of the lifetime benefit (no actuarial adjustment), the temporary benefit, and (when service years equal 30) the supplemental benefit. The annual benefit for years begirming at age 62 consists only of the lifetime benefit. 13. As a rough approximation, think of the discoimt rate by analogy to a personal savings rate: the higher a person's current rate of savings the lower his or her discount rate—in other words, the more that person values future consumption relative to current consumption. The discoimt rate is a measure of patience, or of the importance of deferred gratification. Individuals vary in patience, in the importance assigned to deferred gratification relative to immediate gratification, in the rate at which they save for future years, and so on—all of which is to say that different individuals have different personal rates of discount. Lacking knowledge of the auto workers' individually variable rates of discount, we have adopted the current standard assumption of a real discoimt rate of 2.75 percent. 14. These probabilities were calculated from life-table values in U.S. Department of Health and Human Services (1985, Table 2). 15. Obviously these questions are neither asked nor answered in a vacuum. Nonfinancial factors (e.g., health, normionetary rewards of the job) are relevant to the decision, and the pension-benefit income stream will be evaluated relative to the expected earnings income stream from the current employment. But our main interest in this discussion is with characteristics of the pension-benefit income stream. 16. While employers are not required to negotiate cost-of-living adjustments to defined benefits received by workers already retired, the UAW had been successful in wirming such adjustments during contract negotiations. 17. Note, incidentally, that the average annual benefit at retirement for the SERF retirees with 30 or more years ($16,900) is slightly larger than the corresponding figure for RERP retirees with 30 or more years, despite the fact that the "30 and out" provisions of RERP offered workers the highest armual benefit. The discrepancy is due to the fact that a larger proportion of the RERP retirees with 30 or more years left at age 62 or older. Departures at or after age 62 did not carry the supplemental benefit. 18. Since benefits were calculated for the nonretired workers on the counterfactual assumption of retirement in 1989 under the Regular plan, the pattern of results for the nonretired workers closely parallels the pattern observed for the RERP retirees, though the point estimates differ somewhat because of different distributional characteristics of the nonretired workers. Also, note that the regressions in Table 3.4 are net of the effects of wage rate, a control for variations in the basic benefit rate; and the calculation of actual pension wealth (PDAV) reflects retirees' decisions about electing the survivorship option.

4 Predicting Early Retirement

WHY RETIRE EARLY?

The question itself—"Why retire early?"—is of recent vintage. Although Ransom and Sutch (1986) detected evidence of a slight trend toward younger retirement ages prior to 1930, it has been mainly since the 1930s, and still more especially since 1960, that the event of "early retirement" has grown into a phenomenon of considerable size and political-economic significance on a population basis. As recently as the late 1970s the chief focus of interest in most studies of retirement behavior was still linked to the ''normal retirement age," age 65, even though the labor-force participation rate of men as yoimg as 60 had by then already declined to about 75 percent. With enactment of the 1978 amendments to the Age Discrimination in Employment Act, the research focus began to shift, initially to questions about the importance of mandatory retirement regulations and in particular to the sometimes controversial issue of whether removal of mandated retirement ages would retard the trend toward earlier and earlier retirements (see Levine 1988). A series of analyses by Burkhauser and Quinn demonstrated that the impact of mandated ages was much less than had been supposed (for a review of the studies, see Quinn, Burkhauser, and Myers 1990, pp. 77-87). The difference between supposition and evidence was largely due to a coincidence between the presence of age mandates and the presence of private pension plans: nearly all of the workers who faced a mandatory retirement age were qualified for employer-provided pension plans, and the plans generally contained financial incentives in favor of retirement before age 65. It was clear that employer-provided pension plans had become a major factor in the accelerated rate of labor-force withdrawals. Lifting the mandated "normal retirement" age of 65 would have relatively little impact on the labor supply of older workers simply because the incentive structures of private pension plans, like those of OASI, had made it costly to delay retirement. Indeed, the incentive struc87

88

Chapter 4

tures of many private plans entailed significant costs of delay at ages considerably younger than 65 (as we have just seen in Chapter 3). Between 1960 and 1980 the financial incentive structures of negotiated pension plans had decisively shifted from discouragement to encouragement of early retirement (Mitchell and Luzadis 1988). Certainly by the 1980s the typical older adult, explaining a decision to retire early, was offering reasons as ordinary, as various, and as matter-offactly stated, as were only a relatively small proportion of adults of the previous generation who retired "by choice" (i.e., without a mandated age) in their mid-60s or older. The typical reasons include variations of some or all of the following: "I can afford to retire now, and I want to spend more time doing something else, so I'd better do it while my health is still good" (or "before my health gets any worse"). Thus it was with the auto workers. When asked to name "the main reason" they had decided to retire, roughly a fourth of the retired auto workers cited financial ability (see top panel of Table 4.1). Another third—more or less, depending on which retirement plan they used—said in one way or another that they simply had not wanted to work any longer, that they had wanted to do something else. And concerns about personal health were cited as the main reason by about one in ten. We also put an analogous question to the workers who had not retired by the end of the contract period—all of whom were eligible for retirement at least under the Regular Early Retirement Plan (RERP) but had decided against it. Why had they decided not to retire? At least half of them cited financial consideratioi\s as the main reason. Another one in six cited eligibility concerns, though since all of them were in fact eligible, their concerns might have been about the dollar value of the pension benefits they were entitled to receive under the eligibility rules.^ Most of the remaining workers simply said they were "not ready" to retire, that they "liked to stay busy." So it seems clear that, in terms of the workers' own accountings, the question with which this chapter began—^Why retire early?—typically resolved into one or some combination of three component questions: "Can I afford to retire now?" "Do I like what I'm doing, or would I rather spend my time in other activities?" And "what about my health? Can I continue working? [or]If I stay on the job, will my health suffer so much that I won't be able to enjoy my retirement years when that time comes?" However, the factors involved in the actual process of deciding whether to retire early are often more numerous and more complexly intertwined than those vernacular expressions suggest (see Henretta, Chan, and O'Rand 1992). Consider, for example, that financial reasons were among the most commonly cited by the retired respondents as explanations of their decisions. While the belief that adequate resources will continue to be available can be justifiably

Predicting Early Retirement

89

Table 4.1. Why Retire Early? Who Retired Early? Retired (by plan)

Stated reasons Financial Eligibility concerns Health Like work, stay busy Didn't want to work Working conditions Not ready to retire Plant closed, laid off Other Don't know Total Selected characteristics'' Mean age Percent married Mean household size Percent with child in h'hold Mean service years Percent with 30+ yrs service Percent worked overtime Mean h'hold income (000s) Mean hourly wage rate Mean pension benefit Mean PDAV of benefit (000s) Mean replacement rate Sample N (no weights)

Not retired

Regular

Special

26.5

22.8

—

—

54.1 17.0

—

9.0

10.5

—

—

5.7

41.9

25.7

2.5

3.5

— —

—

—

17.4

8.7 9.5 1.9

25.3

—

9.6 2.5

2.8 3.1

100.0

99.9

100.1

56.8 88.3

58.8 87.7

57.0 88.1

2.4

2.4

2.3

22.5 32.3 95.3 50.7 41.7 14.82 1307.20 193.3

17.7 29.1 50.1 39.0 39.2 14.86 1161.70 158.6

16.7 26.2 38.8 35.1 49.4 16.17 877.36 117.5

.50

.47

.32

635

513

616

'Excepting age and marital status, characteristics are dated as retirement or preretirement date for the retirees and as interview date for those workers who had not retired. ' T D A V is the present discounted asset value of a worker's stream of pension-benefit income (calculated at actual date of retirement for retired workers and as if retirement occurred at end of contract period for nonretired workers).

considered a necessary condition to the election of early retirement, being able to afford an early retirement does not necessarily lead to retirement. Something else, some force of attraction or repulsion, is usually required to break the inertia of that repetitive exercise called "going to work." Other factors must have been subsumed (unvocalized, possibly unthought) in those responses: the attraction of an alternative activity, or concerns about personal health now or later, or the repulsion of a disliked job or of a job that seemed to be getting worse and worse, or perhaps the moral fatigue of replaying that habitual exercise across 30 years of a lifetime. Or should we assume that the "affordability" response was really an inaccurate way of

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saying that their financial analyses had revealed that "now" was the optimal time, that they simply could not afford not to retire? A decision about early retirement is first of all a decision about the timing of possible and probable events during the later stages of a life course. Choosing to retire early is a momentous decision, fraught with doubts and worries and second thoughts. The phrase itself, "early retirement," announces a major risk: "now" could be too soon. Once out, there might be no bridge back—at least none that would lead back to the same job or to an equally good job (see Burkhauser and Quinn 1990; Hardy 1991; Ruhm 1990). Like all decisions of "personal choice," this one must take place within a context of more or less limited options and more or less limited information—including the most tenuous sort of information, forecasts of future conditions and events. Sometimes, of course, the options are severely constrained, leaving hardly any latitude for choice. Personal health can be singularly decisive. More often, however, a person has at least some degree of meaningful choice within the limits of available options and information—even when those options are less than optimal and the information meager. And in such cases, the decision to "retire now" rather than "later"—or not—^will usually unfold as the result of complex intersections among factors ("reasons") that are manifestly involved in the person's deliberations and other factors ("causes" and "correlates"), some of which are determinants of (or at least are correlated with) the "reasons" but others of which operate more or less independently of the reasonings that animate the decisional calculus. Our focus in this chapter is less on the "reasons" than on the "causes" and "correlates"—^not because we believe "reasons" to be unimportant but because careful inquiry into the reasoning process involves requirements which the present study design cannot meet. We assume that a person's evaluation of the price of early retirement ("now" rather than "later") transpires as a complex process of "intraperceptual negotiation" (with or without external guidance or advice) between expected needs and an expected retirement wage, relative to current employment wage and anticipated future (i.e., deferred) retirement wage. The various dimensions and issues involved in the negotiative procees that eventually ends in a reasoned answer to the question, "Should I retire now?" are no doubt important to an understanding of the meanings that lay concealed in respondents' stated reasons for having retired or not. However, a careful, commensurate investigation of those dimensions requires an observational scheme and techniques of data construction that are far more sensitive (and far more expensive) than the scheme and techniques typically suited to a large-sample design such as the one used in this study. Because we did not attempt to probe the cognitive-perceptual processes of the sample members—an at-

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tempt which would have been of dubious worth in any case, since the interviews were about decisions already taken and would not have yielded observations of the decisional process itself—we can only offer indirect insights into the workers' reasons for making the decisions they did make. But that limitation, though undeniably important, does not diminish our ability to investigate the conditions within which the workers' reasonings were made and decisions reached. An understanding of those conditions and how they affected the retirement decision can be more revealing, in certain respects, than the workers' stated reasons. A BASIC MODEL OF EARLY RETIREMENT

Throughout the remainder of this chapter and the chapters that follow, our general strategy is the usual one of trying to predict a past event— namely, the auto workers' decisions to accept or to refuse the opportimity of early retirement during any year of the 3-year interval of the 1987-89 contract. Obviously we do know which of our sample members chose the one course and which chose the other. But we feign ignorance of that fact in order to use other information descriptive of the respondents as a means of predicting what their decisions were. Guided by tiieoretical expectations and pertinent results of previous research concerning early retirement in particular and labor-force participation in general, we will apply, in stages, a predictive model consisting of variables which, individually and collectively, should enable us to discriminate the auto workers who did retire from those who continued their GM employments at least to the end of the contract. To the extent that the model succeeds in those discriminations, and to the extent that the variables and relationships which comprise the model are interpretable in terms of relevant theoretical expectations, we will have achieved, to that same extent, a kind of explanation of the "earlyretirement event" among auto workers who were eligible for early retirement during a specific historical period and within specific socioeconomic circumstances. All members of the sampled populations were eligible for early retirement, at least imder the terms of the Regular Early Retirement Plan (RERP). But since only one of every six workers exercised his eligibility rights during the contract period, it is obvious that the mere fact of eligibility was itself little more than a necessary condition of the retirement decision. The rules goverrung eligibility allowed considerable latitude in a wide variety of individual characteristics, several of which (e.g., seniority, age, pension benefit, health) can be expected to correlate with the retirement decision at least to some extent. But the population of retirees was far from homoge-

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neous on any one of those characteristics. Even high standing in the seniority queue, though an obviously important consideration in a unionized workplace, was far short of being an automatic "trigger" in the retirement decision. While it is true that 95 percent of the RERP retirees left with at least 30 service years (versus one-half of the SERF retirees), it is also true that two-fifths of the workers who had not retired by the end of the contract period had accumulated at least 30 service years and were thus qualified for the "30 and out" provision of RERP, yet had chosen not to retire. In sum, the populations of retired and nonretired auto workers evidently differed along multiple dimensions, several of which were not mutually independent. A suitable model must try to reflect that complexity. Our "basic model" of the early-retirement decision includes three sets of predictors: • Variables describing seniority, financial characteristics, health capability, and related factors which (by hypothesis) would have been immediately involved in the retirement decision; • Some background demographic characteristics (e.g., educational attainment) which, though perhaps not immediately involved in the workers' deliberations, could have had an impact on their outcomes; and • Variables describing experiential characteristics of workers in an industry that had been struggling through hard times (layoffs, plant closures). We estimate the model incrementally, with initial specifications confined to variables from the first set. Then, in turn, the second and third sets of variables are added to comprise our basic model. For theoretical reasons, and in keeping with results of previous research, we assume that the variables comprising this basic model form a necessary point of departure, even though the model specification is surely incomplete. Other variables will be added to the model in later chapters. Our chief aim in the remainder of this chapter is, then, to assess the several components of the basic model as predictors of the early-retirement decision. In the present section we use the model as a means of analyzing variation in the simple binary choice—"retire now or wait imtil the next (or later) contract period?"—without distinguishing between the two avenues of early retirement, RERP and SERF In the third section of the chapter, we switch from the binary-choice definition of the dependent variable to a "timing of retirement" definition, using age at retirement as the dependent variable. Then, in the fourth section, we introduce the alternative avenues. As the analyses in Chapter 3 demonstrated, the incentive structures of the two plans were quite different in some respects, as were their distributions

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of availability, and at least some of those differences should have been manifested in the v^orkers' decisions—or so w^e conjecture. Pension Wealth and Related Variables Our primary financial predictor of early retirement is pension wealth—that is, the present discounted asset value of the given v/orker's pension-benefit entitlement under one of GM's early-retirement plans.^ Pertinent theoretical considerations, together v^ith the results of previous research, lead us to expect a significant positive effect of pension wealth in the retirement decisions of the auto w^orkers.^ Granted, the theoretical basis is somewhat ambiguous. On the one hand, since wealthier persons are able to purchase goods in greater volume and variety, and since one of the goods available for purchase via retirement is increased "leisure time" (i.e., activities other than paid employment), it follows that wealthier persons would be likelier to elect early retirement. On the other hand, wealthier persons also tend to discount the future at a lower rate, which means that they tend to be more patient, prefer to substitute future for current consumption, and thus are more likely to defer gratification of the desire for more leisure time (see, e.g., Blanchard and Fischer 1989, p. 73; Loewenstein 1992). In addition, since the wealth-accrual opportunity costs of retirement can be large (i.e., at any given time before a certain age, the present discounted asset value of the total stream of remaining-lifetime income will increase as retirement is delayed), it follows that wealthier persons would be less likely to elect early retirement.'^ Ultimately, the balance of those contrary tendencies can be weighed empirically. Our expectation is that the contrary tendencies will resolve in a net positive effect of pension wealth. Interpreted within the simpler framework of a replacement rate, this means that a worker should be unlikely to elect early retirement (ceteris paribus) unless the pension income stream equals or exceeds some personally defined "threshold" rate of replacement of the worker's earnings stream. That threshold rate is formally constrained to be less than unity; empirically it will almost always be much less than unity. Of course, any worker who seeks to maximize only financial wealth (i.e., total financial wealth) will postpone retirement as long as possible. However, we assume that the "utility" which workers seek to maximize is not a single, substantively homogeneous category but, instead, consists of multiple, usually contending sorts of goods. Each worker negotiates trade-offs among the contending goods and associated opportunity costs, always within limits of information, options, risk-aversion tendencies, and related constraints. Greater pension wealth provides a worker greater "leverage" in those internal negotiations and thus should increase the likelihood of retirement. But because of the presence of other factors

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(including other goods, variably valued), the pension-wealth effect is probably rather small, on average. The empirical literature generally supports that reading of the theoretical expectation. Careful analyses by Fields and Mitchell (e.g., 1984a, 1984b; also Mitchell and Fields 1984), for example, have demonstrated that retirement age is an inverse function of the present discoimted asset value (FDAV) of the combination of earnings, private-pension, and Social Security income streams {ceteris paribus)—at least for men who retired between the ages of 60 and 68. Kotlikoff and Wise (1989a, 1989b) augmented Fields and Mitchell's evidence by studying more intensively the impact of the pension plan of one specific Fortune 500 company on the retirement behaviors of employees aged 50 and older during the 1980s. The structure of the plan entailed a substantial monetary incentive in favor of continued employment until age 55, but after age 55 the pension-wealth accruals declined sharply and, depending on age and years of service, either turned negative or were very small. And indeed among those workers who were fully vested (i.e., had at least 10 years of service), the observed rates of retirement increased markedly at age 55, and again at ages 60 and 62, leading Kotlikoff and Wise (1989b, pp. 89-95,97) to conclude that the monetary inducements to retire early "had a very substantial effect on departure rates." Pension wealth (PDAV, in thousands of dollars) correlated positively with the likelihood of early retirement among the GM auto workers as well. A probit regression of the binary dependent variable (Y =1, if retired during the 1987-89 contract period; Y =0, if not) on PDAV alone yields the following: Y =-2.245-\-.009 PDAV (.108) (.001) The PDAV coefficient directly implies that workers were likelier to elect early retirement the greater their pension wealth; indirectly, it suggests that workers with greater pension wealth were retiring at younger ages (a suggestion which is confirmed later in this chapter). But the gross effect of pension wealth was evidently quite small. Just how small can be illustrated by evaluating the bivariate equation for a $10,000 increment in PDAV, from $193,000 (the mean value among workers who retired under RERP) to $203,000. The increment corresponded to a difference of only three percentage points in the probability of retirement, from .31 to .34. Interpreted as relative frequencies, those probabilities imply that about one-third of the workers whose PDAVs fell within the $10,000 interval elected early retirement. In fact, only one-fourth did so. The overestimate is not all that large, but one should bear in mind that it pertains to a single narrow interval in the upper range of the PDAV distribution (representing fewer than 5 per-

Predicting Early Retirement

95

cent of the weighted cases).^ Generally speaking, the bivariate equation did not predict actual retirees with much accuracy (only 6.4 percent of all retirees; 39.9 percent of all weighted cases).^ An alternative specification of the pension-wealth effect assumes that it is change in the quantity of wealth, not the quantity itself, that influences the retirement decision. Following Burkhauser's early work during the 1970s, this has been the preferred specification in dynamic modeling of labor-supply responses to the accrual of pension wealth (see, e.g., Burkhauser 1979; Rust 1989; Stock and Wise 1990). The prospect of augmenting or degrading pension wealth by delaying retirement until the next or later period (e.g., a 1-year delay) was doubtless important to the auto workers, for as we saw in the preceding chapter (Table 3.5) delay could yield either positive or negative accruals, depending on the individual worker's age-and-service profile relative to the incentive structure of the retirement plan. However, in the context of our cross-sectional analysis the alternative specification—that is, substituting the 1-year change in pension wealth (APDAV) in place of PDAV—gives empirically similar results: Y=-1.201--.120APDAV (.053) (.009) The coefficient for APDAV does indicate, as expected, that retirement was likelier when delay entailed loss of pension wealth. But this bivariate equation identified the actual retirees even more poorly than did the equation contairung PDAV (0.1 percent versus 6.4 percent). Of course, PDAV and APDAV were significantly correlated: the greater the pension wealth the likelier a delay in retirement date entailed lost wealth, and the larger the size of the entailed loss. Certainly those auto workers who had accumulated relatively large stocks of pension wealth were more apt to retire because their accrual rates were more likely to be negative. Nevertheless, even among workers whose PDAV values were greater than $193,000 (the mean PDAV among the RERP retirees)—all of whom lost or would have lost pension wealth by delaying retirement—7 of every 10 did in fact delay retirement despite the loss, often despite a very sizeable loss. In sum, both pension wealth and change in pension wealth, when considered alone, prove to be rather anemic discriminators of the early retirees. This conclusion from a bivariate analysis in the cross-section is hardly surprising, to be sure, inasmuch as it is based on the assumption that the auto workers utilized a single decision rule and that it was solely a pension-asset maximization rule, deliberated without regard to any contingencies. The idea that most of the workers assigned no value to earnings foregone by retirement, or to alternative activities ("leisure time")/ concerns of health, nonmonetary benefits of continued employment in the GM

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plants (e.g., social ties), or to any number of other considerations when deciding whether to retire, is dubious, to say the least. Before attempting to enhance specification of the model by the addition of other variables—especially variables mostly orthogonal to pension wealth—we want to examine the composition of the PDAV effect. Disentangling the relative influences of its main components should tell us something interesting about the retirement decision. Recall from Chapter 3 that PDAV is a function largely of age, years of service, and categorical differences in hourly wage rate (i.e., the "basic benefit codes")- Any given worker's benefit rate was calibrated jointly by age, years of service, and the wage-rate categories; in addition, age was determinative of the length of period during which supplemental and lifetime benefits could be collected (the younger the age, in other words, the longer a retiring worker could expect pension receipts). Thus, all three variables are implicated in the PDAV distribution. The age and seniority characteristics are most strongly implicated; the categorical differences in wage rate are also reflected, but they are much smaller than the differences associated with age-and-service profiles. Initially we decomposed the observed PDAV distribution into a "fitted" component—that is, the variation in PDAV which could be expressed as a linear function of age, years of service, a dummy variable representing the benefit advantage of 30 or more years of service (hereafter, "Thirty Plus"), and hourly wage rate—and the remaining or residual component (which accounted for 16 percent of the observed variation in PDAV). The results of a probit regression of the binary-choice dependent variable on these two component distributions are shown in the second column of Table 4.2. The effect of the fitted component is very similar to the effect of observed PDAV, of course, since the two distributions are highly correlated. The effect of the residual component is somewhat larger. In column 3 we report the results of a parallel regression, but now with the fitted component of PDAV replaced by four separate predictors—Age, Service Years, Thirty Plus, and Wage Rate. The regression coefficient for each of these variables is net only of the residual variation in PDAV (as well as net of each other). That is, each of the four coefficients captures the combination of two effects: the direct effect of the given variable on the probability of retirement and the effect of that part of the variation in the given variable that was mediated through pension wealth (i.e., the fitted component of PDAV). Note that the specification in column 3 yields a better fit to the data than does the specification in column 2; the improvement is due to the combination of the direct effects of Age, Service Years, Thirty Plus, and Wage Rate. While the fitted component of PDAV expressed much of the variation in age and in seniority, and some of the variation in wage rate, the remaining variation in each of the latter correlated with the retirement de-

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cision. We will address these direct effects in a moment; our concern here is with the combination of direct and indirect effects. As was demonstrated in the previous chapter, the monetary incentive structures of the early-retirement plans incorporated some trade-offs between age and seniority. On the one hand, additional years of service improved the level of expected benefits; but at any age younger than 62 the sizeable increment associated with the 30th year of service offered an incentive for workers who were approaching Year 30 to delay retirement. On the other hand, while increasing age also contributed to the level of expected benefits, the size of this contribution was considerably smaller than the contribution from an equivalent number of service years, partly because the benefit advantage of an additional year of age was offset by the reduced remaining-lifetime period of benefit receipt. Indeed, in the Special Plan the pension wealth of an additional year of age was negative, since in this plan (unlike the Regular Plan) the size of the benefit at activation was not reduced at ages younger than 62. Thus, one might expect that the effects of PDAV-implicated age and seniority on the likelihood of early retirement would manifest something of those countervailing tendencies. In fact, according to the results shown in column 3, the effects of Age and Service Years did have opposing signs. But the direction of difference is contrary to expectation. Since these coefficients reflect both the direct and the indirect or PDAV-implicated effects of age and seniority, one could conclude that a positive direct effect of age more than offset the negative indirect effect of age and, likewise, that a negative direct effect of seniority more than offset a positive indirect effect of seniority (net of the effect of 30 years, that is). That conclusion is mostly correct. But before resting with it, we need to address a major assumption on which the PDAV decomposition represented in columns 2 and 3 is based—namely, that age and seniority were independent of each other. Obviously that assumption cannot be true of any individual. It was also not true of the PDAV implications of age and seniority in the incentive structure of the early-retirement plans. Recall from Chapter 3 that the trade-off between these two contributing factors in pension wealth was approximately uniform only at seniorities younger than Year 30 (as well as at ages yoimger than age 62, at which point both plans ceased to be ear/y-retirement plans, for all practical purposes). Beginning with the 30th year of service, the PDAV implications of increasing age turned negative for the Regular Plan and became even more substantially negative for the Special Plan. Or, stated the other way aroimd, the PDAV implications of the 30th year of service (and beyond) were increasingly negative, under either plan, as age increased. Such was the intended rationality of the plans, after all: create a strong disincentive to continue GM employment after completion of the 30th year.^

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The question now of interest is. Did the actuarial rationality of the plans translate into a practical rationality of the workers' retirement decisions? It is important to be clear about what that question asks. Imagine, for a moment, that any given worker had been able to exercise free choice of retirement ages upon reaching his 30th year of service: if his deliberations had been governed by a pension-wealth maximization rule, he would have chosen to retire at a younger rather than an older age. In other words, retirement at or after Year 30 paid better, in terms of maximizing pension wealth, the yoimger the worker's age at retirement. Of course, any individual worker did not have that free choice; he was of whatever biographical age his birth date dictated when he reached Year 30. But while that particular sort of strategic plarming was necessarily unavailable to the individual, the population of retirement decisions could nonetheless have manifested a corresponding result. Workers who had reached Year 30 at relatively young ages could have been more likely to elect early retirement than workers whose 30th year came at older ages. With that in mind, we again decomposed the observed PDAV distribution. Now the fitted component contains the PDAV variation that can be expressed as a function of Age, Service Years, Thirty Plus, Wage Rate, and a term for interaction between Age and Thirty Plus. The residual component contains the remaining variation in PDAV (now only 4 percent of the total). The effect of the fitted values of PDAV on the probability of retirement (Table 4.2, colunm 4) approximates the effect of the observed values even more closely than before (necessarily so). The effect of the residual variation in PDAV is also larger than before. Note that this specification yields a better fit to the data (now correctly predicting nearly half of the weighted cases of retirees, as opposed to fewer than one-fifth in column 2). In column 5 the distribution of fitted values of PDAV is again replaced by the set of component variables—age, seniority, and wage rate—^now augmented by the interaction term. These results generally correspond to what we saw in column 3, except that now the "trade-off" between age and service can be better appreciated. As before, however, the coefficients manifest both the direct and the PDAV-mediated effects of age, seniority, and wage rate. It is time to separate the direct effects. This is accomplished in the probit-regression results shown in column 6, wherein the observed distribution of PDAV is substituted for the distribution of residual variation in PDAV. Note that the two regressions (colimms 5 and 6) are identical in all other respects; they necessarily fit the data to the same degree, and the coefficient for the PDAV variable is necessarily the same, since in either regression it describes the effect of PDAV net of the effects of age, seniority, and wage rate.^ But in column 6 the age, seniority, and wage-rate coefficients (as well as the coefficient for the interaction between Age and Thirty Plus) are net of all variation in pension wealth (not just the residual varia-

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tion, as in column 5); thus, they capture only direct effects of age, seniority, and wage rate—in other words, the effect of that part of the variation in each of the variables (age, seniority, and wage rate, plus the interaction term) that was not implicated in PDAV. Now we are in a position to address the question of interest: Did the workers' decisions manifest any trace of the actuarial rationality of the plans? Indeed, they did. It is evident from a comparison of the two regressions (columns 5 and 6) that the PDAV-mediated effect of age was positive and large at all levels of seniority until Year 30, at which point it sharply dropped to near-zero or negative values. Conversely, the PDAV-mediated effect of an additional year of service made little difference in the probability of retirement until Year 30, at which point the probability increased substantially at younger ages, less so at older ages. In sum, the evidence suggests—and a subsequent analysis will confirm (Table 4.4)—that retirement ages were younger, on average, among workers who left with 30 or more years of service.^ Turning finally to a consideration of the direct effects of age, seniority, and wage rate (colunm 6), note first that the direct effect of age, like its PDAV-mediated effect, was generally positive. However, there was an important difference at the intersection with seniority. Beginning at 30 years of service, the PDAV-mediated effect of age on the likelihood of early retirement turned negative or became more substantially negative (depending on which plan), for reasons discussed above. But the direct effect of age increased very substantially with the 30th year of service—^meaning that at any given level of pension wealth workers who had reached or passed Service Year 30 were likelier to retire the older their age. Whatever the pension wealth, of course, older ages imply shorter life expectancies and fewer potential years of retirement. Accordingly, insofar as retirement was considered worth purchasing, advancing age tended to overcome the inertia of continued employment at GM, and {ceteris paribus) the probability of retirement increased with age—especially among workers who had qualified for "30 and out" and thus had reached the ceiling on the size of the monthly benefit. Conversely, the direct effect of seniority was negative at all ages and at all years of service. At lower levels of seniority (10 to 15 years) the positive direct effect of age (especially at age 55 or older) more than offset the direct retirement-delaying tendency of greater seniorities. But not at higher levels of seniority. Indeed, for workers who had at least 30 years of service the combined direct effect of age and service was negative and rather sizeable, even for workers who were in their early 60s.io While the younger workers with 30 or more years of service were likelier than their older counterparts to have delayed retirement to some date beyond the end of the contract pe-

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riod, the negative direct effect of high seniority was quite substantial at all ages. The "Stickiness" Factor A high level of seniority implies a well-established inertia on the part of the worker. Once we control for that part of the variation in service profiles which was implicated in the incentive structure of pension benefits, we find that workers with greater seniority had more inertia to overcome, so to speak, and thus {ceteris paribus) were less likely to retire. Lest there be misunderstanding about that seniority effect, perhaps we should emphasize that in terms of observed behaviors it is indeed true that for many of the auto workers the phrase "30 and out" accurately described a behavioral event in personal biography as well as a goal of corporate and union policy. The point, rather, is that while much of the variation in seniority had direct financial consequence—it translated into differences in the monetary value of the pension benefit at activation (thus into differences in PDAV)—and therefore positively correlated with the likelihood of retirement, the remaining variation in seniority had no consequence for the quantity of pension wealth, and this remaining variation was negatively related to the likelihood of retirement. We take this negative direct effect of seniority to be an indication of the "stickiness" of labor supply in the internal labor market. As a cover word for all the various sentiments, habits, and motivations potentially involved in workers' attachments to their employments, "stickiness" refers specifically to the tendency of some workers (especially workers in unionized industries) to remain in their current employments even when the employer (as in the present instance of GM) offers substantial monetary incentives to leave. While it is no doubt true that the inertia of habituated activity, failures of rational accounting, and anxieties about change can be important components of stickiness, some positive motivations are typically involved as well. Treatments of worker attachment have focused mainly on two sorts of positive motivation, both of which draw on the traditional understanding of the employment contract as an implicit tenure contract. On the one hand, employees may derive affective rewards from a sense of commitment to an organization: "loyalty to the firm" is valued as part of the employee's side of the bargain in the implicit tenure contract. ^^ On the other hand, since tenure in an employment contract amounts to an accumulation of capital (the future earnings stream), and insofar as employers tend to pay senior workers at rates that exceed their marginal productivity (the employer's side of the implicit tenure contract), workers who seek to maximize income may be reluctant to forego the higher rates of return which at-

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tach to seniority, even when an added year of seniority has sharply negative implications for pension-wealth accrual. Lacking direct measures of the auto workers' motivational structures, we will not attempt to assess those alternative explanations. But whatever the motivations, a tendency to stickiness implies a preference for continued employment, which in turn means that sticky workers should be less disposed to engaged in behaviors that anticipate retirement. Our data file contains one variable that can be construed as a measure of anticipatory behavior among senior workers—namely, "overtime" hours of work. Granted, there are other reasons for repeatedly "pulling overtime," reasons that have little or nothing to do with the retirement decision. But senior workers who are anticipating retirement should be more likely to work overtime—in order to reduce debt and/or augment savings—than should senior workers who are not.^^ Assuming our construal is approximately correct, we would expect that those workers who had been anticipating retirement (i.e., working overtime) would have manifested less stickiness. Indeed, the data are in agreement. As shown in the first column of Table 4.3, the coefficient for Overtime (coded 1, if yes) is significant and positive.!^ Of more specific interest, however, is the interaction between working overtime and the stickiness component of seniority: according to our expectation, it should have a significant positive coefficient. It does. We re-estimated the equation represented in column 1, but with two modifications. The dummy variable for 30 or more years of service (Thirty Plus) was removed, so that all of the net effect of seniority would be represented in a single coefficient; and a term for interaction between Overtime and Service Years was added. The relevant coefficients (and standard errors) from this re-estimation—Service Years = -.194 (.017), Overtime = -.338 (.369), and Interaction = .022 (.012)—indicate that at 10 years of service the effect of Overtime was negative; at 15 years it was approximately zero; and thereafter it was positive and proportional to years of service. In other words, among the more junior workers (10 to 20 years of service) Overtime either decreased or had little effect on the likelihood of early retirement. But among the more senior workers Overtime increased the likelihood of early retirement. This seniority-related gradient in the effect of working overtime is consistent with our construal of the Overtime variable as an indicator of retirement anticipation. Likewise, the coefficients indicate that among those who had not worked overtime the net effect of seniority was larger (-.194) than it was among those who had (-.172); the difference between the two estimates is significant (at p <.05, one-tailed test). The Wage Effect and Occupational Status Because variations in wage rate were only weakly implicated in PDAV, most of the effect represented by the wage-rate coefficients in columns 3

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and 5 was net of pension wealth. The fact that this negative effect was net of level of seniority (or job tenure), as well as net of age and pension wealth, raises the possibility that the wage effect might have been reflecting, in part, an effect of occupational status. At least the negative sign is consistent with the argument that more highly skilled workers (e.g., toolmakers, machinists) were less likely to retire early because of greater affective rewards—for example, greater job satisfaction or, to recall Halaby's (1986) argument, lower "authority costs." In fact, however, while our data contain only enough information on occupational categories to allow a dichotomy of "skilled versus production workers,"^^ the evidence on that measure argues that higher-status workers were more likely to elect early retirement—net of wage rate, seniority, and other predictors—^not less. That status differential was doubtless an unhappy result from management's point of view. The hope had been that the incentives of the early-retirement plans would act as a solvent of senior-worker stickiness especially among production workers, who comprised the bulk of "excess" labor supply, rather than among skilled workers, who were more costly to replace. But from the standpoint of the skilled workers themselves the positive status effect surely made good sense. They were less likely {ceteris paribus) to defer gratifications purchasable by early retirement from GM not so much because of a higher value assigned to "leisure time" (defined as nonemployment activities)—though that, too, may have been true—but rather because their opportimities in the "second-best job" market (i.e., postretirement employment) were superior to corresponding opportimities for the production workers.^^ In any case, controlling the difference in occupational status leaves unchanged the conclusion that wage-rate variations that were not implicated in pension wealth correlated inversely with the probability of retirement. One could interpret this relationship in terms of an aspect of the "wealth effect" referred to earlier—^namely, that even though wealthier persons can better afford to purchase all goods, including "leisure time," they also tend to be more patient about realizing specific gratifications. However, there is an important ambiguity that must be considered. As Mitchell and Fields (1982, pp. 128-29) pointed out, an income maximizer will retire later than the age at which a person who seeks only to maximize pension wealth will retire, since the income maximizer will retire at that age at which "the last year's earnings are just offset by the loss in the present discounted value of pension benefits" that would result from postponing retirement 1 more year. Thus, the negative wage effect shown in Tables 4.2 and 4.3 almost surely reflects, at least in part, a correction of the tendency of PDAV to overstate the likelihood of retirement at given ages.^^ In other words, the more highly paid auto workers tended to defer retirement, probably because their higher earnings made a later retirement financially more lucrative. Such a tendency would not be inconsistent with the "patience" inter-

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pretation, of course. Wealthier persons can better afford patience; and the patience they can better afford often reaps further advantage in asset accumulation, even though pension wealth under a specific pension plan may be degraded. Other Incomes and Income Demand Given that Wage Rate and Overtime are included in the equations estimated in Table 4.3, most of the variation in respondent's employment income from GM (preretirement or current) has already been taken into account. But there were potentially other sources of income in the given respondent's household—earnings by spouse and/or by other employed member(s) of the household, second-job earnings by the respondent, investment income, and so on—and it is reasonable to think that other-source incomes would have figured into the workers' deliberations when deciding whether to retire "now" or "later." After all, the financial prospects of household life after an early retirement should be better, on average, the higher the total of preretirement household income—assuming that the components of that total, excluding the worker's GM earnings, could be expected to continue or (as in the instance of a spouse's earnings income) to be replaced at some adequate rate by another pension benefit. By the same token, however, most of the likely other-source components of total household income imply differences in the quantity of demand on that total income. A second-person earnings income, for example, implies a larger household size (though the reverse need not be true). Thus, in considering the possible net effects of total household income on the likelihood of early retirement, we need also to consider variables of income demand. Expected demands on available income encompass a variety of potential expenditures, some of them correlated with household size and composition but others not (e.g., home mortgage). Because systematic information concerning debt service and related demand factors was not obtained during the interviews, we must rely on measures of household size and composition (including marital status) as surrogate measures of income demand. The third column of Table 4.3 reports net effects of total household income (preretirement or current, depending on labor-force status, and in neither case adjusted for payroll taxes) and marital status. These results are generally straightforward and consonant with previous research. First of all, consider the effect of Household Income, which, with Wage Rate and Overtime in the equation, mostly captures the net effect of "other-source" income. 17 While it may well be true that a higher level of preretirement household income due to other-source income will, like a higher level of respondent earnings, promise better prospects, on average, for postretire-

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ment household finances, the net effect of other-source income on the retirement decision parallels the net effect of respondent earnings. The "patience" dimension of the wealth effect prevails: the higher the earnings or the higher the other-source component of household income (or both), the more likely the auto workers are to delay retirement. As for our surrogate measures of income-demand factors—marital status and household size—oidy marital status (i.e., married versus not) had a significcmt net effect on the Ukelihood of an early retirement. The size and composition of the worker's household (total size, nvmiber of adults, number of children under age 18) had no effect apart from the size and compositional differences implied by marital status. The positive coefficient for Married is particularly notable in light of previous studies, which have recorded either no net effect (e.g., Burkhauser 1979, p. 72) or, more often, a negative effect (e.g.. Diamond and Hausman 1984, Table 3). In general, married men tend to have stronger attachments to the labor force. Did the auto workers differ in that regard? Probably not. Note that the specification in column 3 (Table 4.3) includes a separate estimate of worker attachment (i.e., the direct effect of seniority); consequently, the positive coefficient for Married is net of variations in attachment. Indeed, with the service variables removed from the equation the coefficient for Married ceases to be sigruficant (though it retains a positive sign).!^ Since the marriage effect is net of income as well as our measure of stickiness, we assume that it maiufested, primarily if not entirely, a difference in the extent to which workers had been integrated into interests and activities separate from those of the workplace—the implication being a higher value assigned to alternative activities (i.e., "leisure time"). As a rough test of that assumption, we added to the specification a dummy variable. Wife Employed, on the argument ti at married workers whose wives were engaged in paid employment would have been less likely to take early retirement. The coefficient, though in the expected direction, was not significant. But as a test of our assiunption, that result was confounded by two factors: first, men whose wives were employed outside the home were significantly younger; second, wife's employment earnings are a component of total household income. With those confoimding factors removed, the evidence is consistent with our assumption.i^ Health Another long-recognized determinant of the retirement decision is health capability. Our measure of this variable, patterned after Barfield and Morgan (1970, p. 104; see also Guest 1954, p. 159), is respondent's report of whether he had experienced any "difficulty in keeping up with work."

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Since few respondents reported more than "some difficulty" (and since, in any case, we have little confidence in the usual assumption of semantic equivalence or inelasticity with respect to differences between "some," "a lot," and the like), we have treated this variable. Keep Up, as a dichotomy (coded 1 if "no difficulty"). Granted, one could argue that this measure is a rather insensitive indicator of health; men are generally loathe to admit that they have difficulty in keeping up with work assignments. And in fact only 17 percent of the retirees, versus 9 percent of the nonretired workers, reported that they had experienced at least some difficulty. While those proportions and the difference between them are not at all unreasonable, they could reflect a differential response bias, in the sense that the retired workers were perhaps less unwilling to acknowledge difficulties and/or tended to recount their retirement decisions as decisions "justified" in terms of physical health. But the same sort of response bias, it should be noted, is typical of questions asking for self-assessments of health in terms of the typical one-word descriptors ("poor," "fair," etc.).^^ One could also argue that the chief reason a respondent would have experienced difficulty in keeping up would have been the pace of work expected of him. No doubt the conditions of work in an assembly plant are very demanding, mentally as well as physically. Describing the shop floor as a "smoke and soot and fimies and sonic puree," Hamper (1991, pp. 69, 132) depicted the typical worker at shift's end as "a heap of defeat with limbs attached." The machine pace of the assembly line has figured long and famously in accounts of job dissatisfaction, stress, and alienation—although, as Hamper also recounts in often colorful scenarios, workers do become adept in shop floor strategies of maximizing control of the work pace.2i If a worker acknowledged difficulty in keeping up with the pace of work in such a setting, the likeliest reason would surely have been some degree of disparity between the pace demanded and his physical and/or mental stamina. Thus, as an indicator of health-related capability. Keep Up is perhaps more closely analogous to a clinician's "stress test" measure than to the typical self-assessed report of personal health ("excellent," "good," etc.), and in that sense might underestimate the magnitude of the health-capability effect. Finally, a design characteristic of our study almost surely does mean that our estimate of the effect of health-capability is understated in broader context. Because the auto workers had the option of an early retirement under the separate "Disability Retirement Plan," those who suffered the worst health would not have been members of the sampled population. Since the Disability retirees had departed for reasons of health by definition, their exclusion implies an underestimation of the effect of health within the broader population of senior auto workers.

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With those caveats in mind, what may then be said of the net effect of our measure of health capability? First of all, workers who reported no difficulty in keeping up were, as expected, less likely to have taken early retirement. Second, the effect was essentially uniform across the range of respondent ages and years of service; moreover, the effect of pension wealth was not sensitive to the difference in health status.22 Third, by reasonable hypothesis, those workers who battled the assembly line pace—the production workers—would have had more difficulty than machinists, electricians, carpenters, and other skilled workers in keeping up with their work assignments. Our data support that hypothesis to the extent of a very modest correlation {<^= .06; p<.001), which persisted net of controls for age, educational status, and labor-force status. We then tested a collateral hypothesis: did the effect of Keep Up differ between production and skilled workers? It did not (i.e., the test of interaction between Keep Up and Skilled Worker was insignificant). Insofar as "keeping up with the job" was inherently more difficult for men who worked the assembly line, that difference had apparently been incorporated into the production workers' sense of "normal expectations" concerning the pace of work and did not translate into a greater sensitivity, at least with respect to the retirement decision. What we are suggesting, in other words, is simply that the meaning of "keeping up with the job" was elastic, and that this semantic elasticity varied between occupational categories (as well as among individuals within either of the categories). A worker's self-assessed ability to "keep up" was meaningful, not by some uniform scale which applied indiscriminately across work settings, but rather by a variable scale calibrated at least partly in terms of occupationally specific expectations of "what the job requires." The magnitude of the net effect of Keep Up was not all that large in any case. Indeed, it was noticeably smaller in 1989 than it had been 20 years earlier in Barfield and Morgan's study, though part of this difference is a function of the somewhat higher mean age of the Barfield-Morgan respondents.23 It is true, of course, that our estimate of the effect of Keep Up is deflated by the previously noted sample selectivity: the very workers who were most likely to have retired for reasons of health—those who had departed under the Disability plan—were excluded from the sampled population. But this sample selectivity was true of the earlier study as well (see Barfield and Morgan 1970, p. 97). One might conjecture that some of the effect of Keep Up was concealed by the presence of Overtime in our model, the argument being that workers who had experienced difficulty in keeping pace would have been less likely to have worked extra hours. However, while Keep Up and Overtime were positively correlated, the relationship was extremely weak (ct)= .03; p<.05). More to the point, the coefficient

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for Keep Up was tinchanged when Overtime was deleted from the equation. Given the improvements in hesdth status in the older-adult population during the last several decades, combined with the health-selectivity that is implied by long-term continuation of employment in a physically and psychically demanding work routine (plus the selectivity implied by the exclusion of workers who retired imder the Disability plan), the relatively modest net effect of our measure of health is not surprising. It is indeed true that many studies of the general population have found that workers with ill health (usually self-assessed) tend to retire at youaiger ages (e.g., Burkhauser and Quinn 1983; Burtless and Moffit 1985; Diamond and Hausman 1984; Hanoch and Honig 1983). However, Burtless (1986) has estimated that men whose health was self-assessed as "poor" retired on average only 13 months sooner than men who assessed their health as "average" or better. And in view of the probable bias in self-assessment measures, that estimate was likelier overstated than understated. Some Background Factors As is apparent from the fifth column of Table 4.3, two other variables tested for inclusion in the basic model were significant net predictors of early retirement: education and race/ethnicity. Barfield and Morgan (1970, p. 100) reported that auto workers who had continued their formal education beyond high school tended to postpone retirement, a tendency which occurs in the general population as well. Here our finding matches theirs rather closely We initially measured the educational variable as a set of several categories (e.g., fewer than 9 years of schooling, 9 to 11 years of schooling, and so forth). But as in the earlier study, the only significant contrast occurred between those with and those without a high school diploma (p<.05, one-tail test). Similarly in accord with Barfield and Morgan's results (1970, p. 99) and Burkhauser's reanalysis (1979, p. 69), African American (but not Hispanic American) workers were likelier than "whites" to postpone retirement. The effect appears at the bivariate level, it survives controls for other variables in the model, and it is essentially uniform across the categories or values of those other variables.^^ Burkhauser's (1979, p. 72) explanation of the corresponding result from his reanalysis of Barfield and Morgan's data is plausible. The sampled population of auto workers differs in many respects from the general population of older male adults, and part of that difference manifests an important historical consequence of unionization— namely, reduced discriminations in wage rates and wage histories on the basis of race or ethnicity. To the extent that the auto workers contemplated postretirement employments when deliberating whether to "retire now" or

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"later," the greater patience of the African American workers could well have reflected their perceptions (and the actuality) of the opportimities of alternative, "second-best" jobs. Layoffs and Plant Closures To this point, we have focused on financial, health, and related predictors of the early-retirement decision, without regard for the workers' experiences of the vagaries of employment in an industry that, while always sensitive to cyclical adjustments in the economy, had been suffering problems far more severe than others it had faced since World War II. We now remove that restriction by considering two variables which describe something of those vagaries. One is Laid Off (coded 1 if the respondent reported having recently experienced one or more layoffs). The other is Plant Closed (coded 1 if the respondent retired from a plant that closed or, among the nonretired respondents, if he had recently worked in a plant that closed). Cycles of layoff and recall have long been a normal part of work life in the auto industry, as in the manufacturing (and construction) industries generally. Ordinarily, the risk of layoff is strongly governed by seniority rights; junior workers absorb the bulk of the risk. Ordinarily, then, one would not expect the fact of layoffs to have much of an impact on the deliberations of workers who have enough seniority to be seriously considering an early-retirement option. Probably for that reason, the question of layoffs was not salient when Barfield and Morgan designed their study. But conditions in the auto industry were far from ordinary during the 1980s. Layoffs occurred more frequently and with longer durations; they sometimes carried the threat of permanent job loss because of plant closures; and they were no longer so easily regulated by traditional seniority rules. The prospect of a plant shutdown meant that all workers had to consider the prospect of job loss. Thus, it would not be surprising to find that, under such circumstances, senior workers' decisions about early retirement were affected by whether they had experienced recent layoffs and/or had worked in a plant that ceased operations. In fact, as we see in the last column of Table 4.3, each of the variables did have a net impact on the retirement decision. On the one hand, auto workers who had experienced recent layoffs were disinclined to take early retirement during the interval immediately following recall, other factors being equal. Although we do not have the means to test it, our interpretation is that such workers, even if otherwise interested in the opportunity to retire early, wanted first to reduce debts accumulated during the layoff and/or to repleiush personal savings.^s On the other hand, workers who had been employed in a plant scheduled for shutdown were likelier to elect early retirement—^probably because they saw

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early retirement as their best option under the circumstances, even if they had previously imagined a much later retirement date. Before accepting that interpretation, however, a potential complication must be addressed. Obviously the population of workers directly affected by a plant closure was a selected population, inasmuch as the plants in which they worked were a nonrandom selection of all plants. In principle, this raises the possibility that factors correlated with membership in the selected population were more or less strongly correlated with factors determining (or associated with) the probability of retirement. Depending on the magnitude of that correlation, the coefficient for Plant Closed could be significant simply because senior workers in closing plants were more strongly characterized by other determinants of the retirement decision. The hypothesis is plausible. But tests based on available data do not support it. First of all, senior workers who had experienced a closure were not distinctive, on average, in demographic composition.^^ Second, and following from the preceding conclusion, an adequate predictive model of Plant Closed could not be constructed from the worker characteristics in our data file. The theoretically most plausible model predicted zero departures from the modal assumption that no one worked in a closing plant. Even with every remotely plausible variable added to the equation, few nonmodal cases were accurately predicted (thus, the residual distribution barely differed from the observed distribution). Finally, we estimated the basic model (Table 4.3, column 6) among only those workers who had experienced a closure; the several predictors behaved essentially as in Table 4.3.27 In sum, then, the evidence suggests that the selection of plants for permanent shutdown, though nonrandom in terms of plant characteristics, was not biased relative to retirement-related characteristics of the senior workers. The fact of plant closure as such increased the likelihood of early retirement.

PREDICTING AGE AT RETIREMENT The decision to take retirement "early" implies that the event occurs at an age younger than would have otherwise obtained. Therefore, factors which favor early retirement are in that sense factors favoring retirement at younger ages. But while the implication is necessarily true for any individual within the binary-choice framework of "retire now or wait until later," it does not necessarily follow that the factors which predict the binary choice will equivalently predict age at retirement among those who do retire. As we noted in conjunction with Table 4.2, the one set of results suggests, but does not necessarily entail, the other. With that in mind, we now shift the focus of analysis from the binary-choice decision to the contingent

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question, "What factors predict the age at which early retirement was taken?" The question is contingent because it assumes that the decision to retire early has in fact been taken. That being the case, and in view of preceding analyses, the question of interest cannot be answered simply by estimating an "age at retirement" model for the retired workers only. And this is true despite the fact that the retired workers were separately sampled by an appropriate probability design. In other words, the contingency here at issue is not simply a matter of degrading the probability characteristics of a sample, and thus the basis of inference, such as happens when one selects from a probability sample a nonrandom subsample for separate analysis. Rather, the contingency is within the decisional-behavioral process in the population of workers. As should be clear by now, those workers who decided in favor of early retirement were a highly selective subset of the population. The measured factors by which they were selective are also the factors (or are among the factors) which, by hypothesis, would have determined their retirement ages. Unless that selectivity is taken into accoimt— unless, in other words, the contingency of retirement age is explicitly modeled as part of the model predicting age at retirement—the analysis will be necessarily confounded by specification error. And in view of the results examined in previous tables, it is clear that the error would have highly misleading consequences. The appropriate response in this analytic situation is a two-equation selection model (commonly termed a "sample-selection" model, even though the set of modeling techniques has wider application, as in the present instance).^s The first equation specifies a selection rule by which the population subset is nonrandomly selected from the whole. In the present instance we used the selection rule which is specified as the probit equation reported in the last column of Table 4.3. Estimation of this "selection equation" will generate a distribution of values (inverse Mills ratio values, commonly designated "lambda") that measure the "unlikelihood" that observed cases (here, workers) fall into the selected subset (here, retired workers) according to the selection rule. This distribution of values is then included as a "selection variable" in the second-stage equation, which in the present instance expressed "age at retirement" as a function of 15 predictors (including the selection variable, "lambda"). Estimations of the second-stage equation are reported in Table 4.4. The results shown in the first column are without, while those in the second column are with, correction for the selection effect, which (as indicated by the coefficient for lambda) was significant and very substantial. A comparison across columns demonstrates rather well just how misleading an analysis of a nonrandomly selective subpopulation can be when effects of the selection process are not taken into account.

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Table 4.4. Age at Retirement: OLS Coefficients, with and without Adjustment for Selection Effect

Constant PDAV (000s) Service Years Thirty Plus Hourly Wage Rate Skilled Worker Overtime Hliold Income (000s) Married Keep Up Education: 12+ yrs African American Hispanic American Laid Off Plant Closed Umbda Adjusted R^

59.780(.355) -.091' (.001) .387" (.008) 1.61^ (.131) .045* (.018) -.029 (.076) -.099 (.066) .001 (.003) -.800(.106) -.065 (.084) -.088 (.065) .042 (.129) -.230 (.168) -.090 (.098) .127 (.084) — .92

58.860' (.339) -.09? (.001) .391(.007) 2.056^ (.128) .144' (.019) -.339' (.077) -.208' (.063) .011' (.003) -.918" (.096) .049 (.082) .001 (.063) .189 (.121) -.086 (.160) .136 (.094) -.008 (.082) -.806" (.053) .94

-p < .001. *p < .05 (two-tailed tests).

Substantively, the estimations reported in column 2 are easily summarized. The financial variables, the measure of stickiness, the measure of anticipatory behavior (Overtime), occupational status, and marital status were all significant predictors of retirement age; and, for each, the direction of relationship is consonant with results obtained from the binary-choice model. Thus, for example, the greater the pension wealth (PDAV), the more likely an early retirement and the younger the age at retirement among

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those who did retire. Married men were likelier to retire early; correspondingly, of the workers who did retire early those who were married retired at younger ages. And so on with the other significant predictors.^^ In all those respects, then, the binary-choice model and the age-at-retirement model yield virtually identical imderstandings of the early-retirement decision. Neither health capability nor the two variables describing workers' experiences with industry contraction (i.e.. Laid Off and Plant Closed) were significant predictors of retirement age. Each of the variables influenced the probability that a worker would elect early retirement, but they did not correlate with the biographical age at which a decision in favor of early retirement was enacted. These results are also consonant with the results from the binary-choice model, though the interpretations vary. With respect to Plant Closed, for example, the key point is that whereas the event of a closure increased the likelihood of exit behavior, the event was not systematically related to worker's age or to the distribution of potential ages at retirement. When the relatively punctual event of a closure occurred, it occurred at whatever age each affected worker happened to be. So even though the actual retirees were selected partly on the basis of Plant Closed, that selection did not translate into a relationship between actual ages at retirement and having worked in a plant that ceased operations.^o On the other hand, it is also true that the actual retirees were selected (or self-selected) partly on the basis of health capability; those who reported no difficulty in keeping up were less likely to elect early retirement. But as we saw in Table 4.3, the selectivity by health capability was weak— primarily because most of it had been "skimmed off" (by definition of the sampled populations), but perhaps also because our Keep Up measure was insufficiently sensitive to remaining variations of health capability. Certainly one would expect to see some systematic age gradients in various health characteristics of the auto workers, and insofar as any of those characteristics were selective of exit behaviors the selectivity should have been instrumental in shaping the age-at-exit distribution. But since variations in those characteristics were not well captured by our binary measure of health, age at exit was indifferent to whether the retired workers reported having had trouble keeping up with work or not. REGULAR VERSUS SPECIAL EARLY RETIREMENT

The preceding analyses assume that the retirement decision did not vary systematically according to whether any given worker had the opportunity to retire via the Special Early Retirement Plan (SERP), in addition to the opportunity of the Regular Early Retirement Plan (RERP). There are good reasons to doubt that assumption. Consider first of all the fact that

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SERP was, as the name says, a special plan and therefore could have occupied an importantly different conceptual or semantic space in the workers' views of their plannable futures. Part of that difference was highlighted in company and union efforts to encourage senior workers to take early retirement in order to make room for juruor workers (a set of issues we address in Chapter 6). But more fundamentally, SERP was "special" because of differences in eligibility rules and incentive structure, as we saw in Chapter 3. To review those differences briefly, recall that the opportunity to retire early was always available under RERP to workers 55 or older, so long as they had compiled at least 10 service years. But if they retired before age 62 with fewer than 30 years of service, the price of retirement imder RERP carried a premium—namely, a reduction in the basic benefit rate conunensurate with the nimiber of years short of age 62. Such was the context in which the opportunity afforded by SERP more or less irregularly appeared. Recall that the existence of SERP stemmed from a recognition by management and imion that the terms of RERP had not been sufficiently successful in achieving the desired shrirJcage in GM's internal labor market. SERP offered additional incentives designed to draw more workers into early retirement, even workers who were a dozen years away from OASI eligibility. Workers who were otherwise inclined to purchase early retirement could do so under SERP without paying the price premium of a reduction in basic benefit rate, and without RERP's restrictions on postretirement employment earnings. But SERP was "special" not only in its financial incentives. Its eligibility rules reflected an effort to target the added reductions of labor supply on specific plants. Thus, opportunities to take retirement under SERP were distributed nonrandomly yet, from the point of view of the average worker, less predictably than under RERP. With that context in mind, then, consider the following question: If a worker had been inclined to take early retirement but had not done so imder RERP, why would he have subsequently retired if offered the opportunity of SERP? One answer, or one major part of an answer, is immediate: because he could take early retirement without paying the premium normally charged those who retired before age 62. But another part to the answer is conceivable. Since SERP opportunities were targeted on specific plants, typically in conjunction with a closure or major cutback, workers could well have imagined that refusing a SERP opportunity would entail a greater-than-normal risk of indefinite or even permanent layoff (and not "just" a greater likelihood of relocation to another plant). In other words, those workers who had, at any given time, refused the ever-present opportunity of RERP had done so primarily because they had deemed the offer unacceptable, the price too high relative to the risks entailed by refusal. But some of these workers might have liked the idea of early retirement; they simply didn't like the price. SERP was designed to capitalize on that possi-

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bility by offering a lower price, though only to certain workers. If and when the opportunity of SERP was presented to these more "price-sensitive" workers, they would be likely to accept it—or so the expectation—^not only because of the improved benefit rate (relative to RERP) but also because they believed they had more to lose by refusing this "special" opportunity. To investigate these and related issues, we re-estimated the basic model, using three end-states in definition of the dependent variable—Y^ = 1 if Not Retired, Yj = 1 if Retired via RERP, and Y^ = 1 if Retired via SERP— instead of the binary-choice definition (Retired vs. Not). With three endstates in the dependent variable, we switched to multinomial logit regression as a means of re-estimating the model. The results are given in Table 4.5.31 Xhe fii-st two columns report coefficients for predictors of retirement via RERP (Yj) and retirement via SERP (Y2), each normalized to YQ (i.e., the YQ coefficients are set to zero). The third column reports tests (t ratios) of the significance of difference between the Y^ and Y2 coefficients for any given predictor; these tests assess the extent to which a given factor influenced the relative preference for one plan versus the other. Generally speaking, the results shown in Table 4.5 are in close accord with what we saw in Table 4.3. This is as it should be, of course, since those previous results described effects averaged across the two avenues of retirement, RERP and SERP. But given the strategic differences between the two retirement plans, we would expect to see some discrimination in the effects of certain predictors. And we do. First of all, consider PDAV. The higher the present discounted asset value of pension wealth, the likelier early retirement by either plan. But the size of the effect differed significantly (at p<.001) between retirement avenues: workers who left via the Special Plan were more sensitive to pension wealth.32 This difference in sensitivity is graphically depicted in Figure 4.1, which displays evaluated probabilities of retirement under each plan at various levels of pension wealth for married, white, high-school-educated production workers who had completed 30 years of service at age 57, had not been working overtime, had experienced no trouble in keeping pace with the job, had not experienced recent layoffs or a plant closure, and who reported a total household income of $40,000. Since the model on which these evaluated probabilities are based (Table 4.5) falls well short of a perfect fit to the data, the probability distributions only approximate the distributions of actual decisions. Nevertheless, it is clear that workers' sensitivities to pension wealth were somewhat stronger in the context of a SERP opportunity, even among workers who had reached the 30-year mark. The disparity no doubt manifests a mixture of relative incentives. On the one hand, workers retiring imder provisions of SERP were officially free to pursue postretirement employment without incurring the penalty of marginal

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Table 4.5. Basic Model of the Early-Retirement Decision: Multinomial Logit Coefficients (Yo = 1 if Not Retired; Yi = 1 if Retired via RERP; Y2 = 1 if Retired via SERF) t-ratio:

Constant PDAV (000s)

Age Age 62+ Service Years Thirty Plus Age X Thirty Plus Hourly Wage Fate Skilled Worker Overtime H'hold Income (000s) Married Keep Up Education: 12+ years African American Hispanic American Laid Off Plant Closed - 2 log likelihood Predicted RERP SERP not retired overall "p < .001 *p < .05 (two-tailed tests) ^p < .01

Yi

Y2

-4.854 (10.720) .177« (.018) .199 (.179) 1.012^ (.481) -.800" (.081) -81.748" (13.350) 1.369(.218) -.654(.085) 1.761(.351) 1.010(.267) -.051(.011) 2.129(.443) -.576 (.380) -.854^ (.283) -1.041" (.490) -.086 (.672) -2.429(.423) .823' (.397)

-37.798(9.950) .250(.020) .701(.166) -1.622' (.563) -.967(.087) -111.520(12.110) 1.765(.196) -.557(.088) 2.194(.388) .488 (.322) -.055(.013) 2.625(.555) -.454 (.452) -.514 (.335) -1.147" (.588) .077 (.829) -1.859(.440) 1.379(.406)

385 63.7 67.7 98.2 77.2

Y,-Y2

2.68 -4.55 -2.46 4.68 2.16 2.40 -1.93 -1.14 -1.21 1.67 0.28 -0.94 -0.29 -1.07 0.17 -0.20 -1.17 -1.36

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155 160 165 170 175 180 185 190 195 200 205 210 215 220 PDAV(inOOOs)

Figure 4.1. Evaluated probabilities of early retirement at various levels of PDAV, by retirement plan.

taxation on their earnings. Thus, to the extent that workers had skills that were highly marketable outside the automotive industry (i.e., outside UAW jurisdiction), they were likelier to retire at a lower PDAV than would have been acceptable to them had their only retirement avenue been the Regular Plan. On the other hand, workers retiring under SERP were also likelier to have faced undesirable costs—an undesirable relocation to another plant, indefinite or permanent layoff—had they refused an opportunity of retirement via SERP; and this, too, made a smaller PDAV more attractive than it would otherwise have been. Second, the net age effect (i.e., the effect of variations in age that were not implicated in observed values of PDAV) was significantly different between the two plans. It is apparent that, in addition to a general tendency in favor of retirement at advancing ages (net of other factors)—which was stronger among workers who had the option of departure via SERP—the

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specific category effect associated with ages 62 and older was much more important for the SERF retirees. This latter difference was undoubtedly a function of a self-selection process which affected the age distribution of the workers who were likely to have the opportunity of leaving via SERF. Workers who had not already retired under provisions of the Regular Plan by age 62 were comparatively unlikely to change their minds about early retirement even if the opportunity of SERP arose (net of other factors, of course, such as a plant closure) .^^ Third, the evidence concerning employee stickiness (as indexed by the net effect of seniority) is reproduced in Table 4.5, though now with a significant difference by retirement plan. In general, the stickier the worker, the more likely he elected retirement by the Special Plan, if he did retire. The difference is most pronounced among those who had completed 30 or more years of service, especially if they were comparatively young in biographical age.34 Fourth, the coefficient for Overtime is significant for exits via RERP but not for exits via SERP (the difference between coefficients is significant at p<.05 in a one-tailed test). This is consistent with our previous interpretation of Overtime as an indicator of anticipatory behavior. Finally, the evidence suggests that workers who had experienced a plant closure were more likely to have taken early retirement under the Special than under the Regular Plan.^s This difference is consonant with the fact that RERP retirees came from the broad range of plants and tended to be much more strongly self-selected by criteria of the "30 and out" provision, whereas the Special Plan was targeted more toward the labor force of plants scheduled for ten\porary or permanent shutdown. Comparative Sensitivities to Pension Wealth As previously remarked, the PDAV implications of increasing age turned negative under the conditions of the Regular Plan, and became even more strongly negative under those of the Special Plan, for workers who had completed their 30th year of service. This difference in actuarial rationality between the plans means that, in general, a urut increase in PDAV should have had a stronger positive effect on the probability of retirement via SERP than on the probability of retirement via RERP—assuming that the difference in actuarial rationality translated in approximately the same degree into the workers' decisions imder the two plans. The comparative coefficients for PDAV in Table 4.5 do support that expectation (as do the evaluated probability distributions in Figure 4.1). However, because those coefficients are net of the age and seniority variables, they do not reflect the PDAV-implicated effects of age and years of service. To rectify that, and

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thus obtain a better picture of workers' respoi\ses to the two plans in terms of pension wealth, we re-estimated the multinomial logit model after excluding the age and seruority variables. On that basis it was apparent that the total effect of PDAV on the retirement decision was somewhat larger for RERP exits than for SERF exits (p<.001). In other words, the PDAV-implicated effects of age and seniority were, on average, greater under the Regular Plan. But a closer inspection of the data showed that this difference resulted mainly from the fact that 95 percent of the RERP retirements (versus half of the SERP retirements) occurred under "30 and out" provisions—that is, after completion of the 30th service year. For any worker who had completed at least 30 years, the financial incentives of the two plans were the same, excepting RERP's official restriction of postretirement employment earnings; so there was little reason to prefer one plan over the other on grounds of pension wealth. Thus, any worker who had been inclined to retire at or soon after Year 30 was likelier to have done so under RERP. But in addition, his sensitivity to PDAV should have been somewhat greater under RERP than under SERP, since retirements under SERP after 30 years were "second thought" decisions (i.e., the worker had passed the opportunity to leave under "30 and out"), and thus were more likely motivated by factors other than pension-wealth incentives. Indeed, the data agree. We tested an interaction between Thirty Plus and PDAV (with both Age and Service Years excluded from the estimation). The interaction term was positive (p<.05) for RERP, negative (p<.001) for SERP, and the difference between the coefficients was significant (p<.001). A parallel question concerns age: Did the "plan preferences" of the retiring workers manifest differences in PDAV-sensitivity according to age? Workers who retired at ages younger than 62 should have been more sensitive to PDAV if they departed before Year 30; and the sensitivity should have been greater under SERP than under RERP (inasmuch as the former carried no benefit penalty for retirement ages younger than 62). Again, the data are in agreement with expectation. We tested a second-order interaction among Age 62, Thirty Plus, and PDAV (with Age and Service Years excluded, as above), plus the two first-order interactions. The second-order term was significant (p<.05) for SERP, nonsignificant for RERP, and the difference was significant (p<.05). Summation across the relevant coefficients confirmed that PDAV-sensitivity was significantly greater for SERP than for RERP retirements when age was younger than 62 and service years fewer than 30. In sum, then, workers' retirement decisions did marufest something of the difference in actuarial rationality between the two plans, even at this rather detailed level of comparison. We had already seen some evidence of that manifestation at a gross level, of course: roughly 9 of every 10 retirees who departed before Year 30 did so via the Special Plan.

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SERF as a Contingent Avenue The multinomial logit model estimated in Table 4.5 assumes that the two retirement avenues were, as behavioral options, symmetrically independent. But the option of early retirement via SERF was contingent in ways that potentially compromise that assumption and the estimations based upon it. Recall, first of all, that whereas the opportunity to retire under RERP was equally available to all members of our defined population of auto workers (i.e., all of them were technically eligible under RERP's provisions), opportimities to retire under SERF were not universally distributed. We see no evidence in the data to support the hypothesis that SERF opportunities had been targeted to specific individuals as such.^^ Even so, however, the distribution of SERF opportunities was nonrandomly selective, and that selectivity could have correlated with retirement predictors in ways that confound the estimations in Table 4.5. Moreover, there is another, though closely related sense in which the workers who were "at risk" for SERF opportunities were a selective population. A large minority of those men who retired via SERF did so with 31 or more years of service (of whom nearly two-thirds had more than 35 years). The implication is that these workers—having passed the opportunity to leave under the "30 and out" provisions of RERF, only later to reconsider and leave via SERF— had been comparatively sticky, less "eager" to retire. By contrast, it is doubtful that many (if any) workers, especially among those who had reached the 30-year mark, would have elected retirement under RERF after having passed an opportunity to depart via SERF. The foregoing considerations describe an asymmetrical contingency in the relationship between the two retirement plans. The question is, has it compromised any of the conclusions drawn from the multinomial logit analysis reported in Table 4.5? In brief, the answer is that it has not—with one relatively minor exception. The test from which that answer derives was based on a probit selection model (results are shown in Table A.2). The first stage consisted of a probit equation predicting Y = Not RERF (i.e., all weighted cases who did not retire via RERF were coded 1; all remaining weighted cases were coded 0), using the full set of predictors from the basic model. The inverse Mills ratio distribution ("lambda") generated from that regression was then passed to the second-stage equation, which predicted retirement via SERF among only those workers who had not retired under RERF, using once again the full set of predictors from the basic model, now augmented by lambda. As a comparison of the last column of Table A.2 with the last colunm of Table 4.5 demonstrates, the two approaches to estimating the model for retirements under the Special Flan lead to essentially the same conclusions.^^

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SERF and Age at Retirement We already know that the average age at retirement was lower among workers who left by the Special Plan (i.e., age and service years correlate positively, and SERF retirees more often left before reaching their 30th year). The only remaining questions are, first, whether that younger average age at retirement was due simply to compositional differences between SERF and RERF retirees, and—since it was not (see Table A.3)—whether the effects of other determinants of retirement age were sensitive to the difference in plans. Generally speaking, they were not. The two exceptions parallel evidence drawn from the multinomial logit estimations in Table 4.5—namely, that SERF retirements were more sensitive to pension wealth and tended to occur among workers who had evinced somewhat greater stickiness (no doubt a reflection of the fact that many of the eventual SERF retirees had forgone opportunities to retire imder the "30 and out" provisions of RERF). Both tendencies are confirmed in the interaction terms reported in the last column of Table A.3.

ASSESSING THE BASIC MODEL Toward the beginning of this chapter we described our general analytic strategy as one of "retrodiction"—trying to predict an event that had already happened. To that end, we have applied a rather simple "basic model" of the retirement decision (or more precisely, of the outcome, not the process, of that decision), and in the several applications we have gained some understanding of how various factors affected the decisional outcome. We take that understanding to be the primary measure of the model's success. But there is also, secondarily, the question of predictive success: How well did the model perform as a predictive device? While success in prediction need not, and often does not, contribute to successful explanation, assessing a model's predictive ability (or "goodness of fit") can provide useful information for a number of purposes, including subsequent efforts to expand or otherwise improve the model, which is the main use we intend. So how well did the model perform as a predictive device? In initial, abbreviated version (Table 4.2, columns 5 and 6), the model correctly predicted only 63 percent of the actual retirees. In full, final version, containing a total of 16 separate predictors (Table 4.3, column 6), the success rate was considerably higher, with 76 percent of the actual retirees correctly identified. And, as can be seen in Table 4.5, the model was about equally successful between the different retirement avenues. A three-in-four rate of predictive success is not negligible, to be sure. But bear in mind that if we

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knew only one fact about the defined population of auto workers—namely, that 83 percent of them continued their GM employments throughout the duration of the 3-year contract period—^we could predict that each individual auto worker fit the modal case (i.e., did not retire) and be mistaken in only 17 percent of the identifications. Relative to that benchmark, an error rate of 24 percent is hardly cause for champagne. Indeed, an error rate of 24 percent is not much better than the error rate (33 percent) we would get by using a coin toss as our decision rule. But that is the simple answer. A more complex answer begins in recognition that the whole point of the exercise was not merely to identify who had and who had not retired during the 3-year interval. AJFter all, that could have been achieved (as it was) by simply asking the individual workers a single question. Rather, the point was to assess an imderstanding of the conditions under which any given worker was likely to have decided in favor of an early retirement, by comparing predictions derived from that understanding to the actual distribution of decisional outcomes. From this more complex perspective, a success rate of 76 percent signals accomplishment, not failure, since accurate prediction of an actual event from an understanding of its conditions rather than from a foreknowledge of the outcome (as in prediction by the modal case) is generally the more difficult feat. One of the more striking conclusions to be drawn from the analyses concerns the extent to which the auto workers' decisions seemed to manifest an appreciation of the actuarial rationality of the early-retirement plans. As should have been evident from Chapter 3, calculating the present discounted asset value of a remaining-lifetime pension stream is hardly a simple exercise (and for a remaining-lifetime total income stream, still less so). Few employees in any industry are likely to imdertake those calculations; very few companies provide the actuarial information and skills for their employees; and even if the calculations were provided, it is not selfevident that the average worker would prefer a decisional calculus based on the complexities of alternative PDAV profiles to the intuitively simpler exercise (similar to ordinary household budgeting exercises) of calculating an anticipated retirement income in ratio to current employment income. And yet the preceding analyses suggest that the auto workers were somehow taking actuarial information into accoimt when deciding "the best time to retire." Other studies (e.g., Kotlikoff and Wise 1989b) have reported evidence leading to the same conclusion, and indeed some studies have interpreted the evidence on the assumption that employees directly act on the basis of actuarial information and calculations. But as Kotlikoff and Wise (1989b, p. 98) pointed out with respect to their own interpretations, this very strong assumption is surely unrealistic.^^

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Our interpretation does not depend on that assumption. Instead, we argue that retirement age is an inverse function of PDAV, not because workers are so astute actuarially that they either intuitively know the optimal age (highly dubious) or can calculate their own individual set of PDAV profiles (also highly dubious) or have them calculated by an actuary (less dubious in principle but rare in practice), but because of an organizational rationality that shapes individuals' perceptions, motivations, and expectations (concerning "retirement" and much else besides) in sequences of quasistrategic learning behaviors. Assume, for a moment, that at any given time some portion of a company's senior workers would be inclined to purchase retirement if only their expected retirement wages were a little higher. A company that seeks to accelerate exits among senior workers by advancing the inflection point in PDAV profiles will offer a standard or an augmented benefit rate at an earlier than normal age (typically under specified conditions). The immediate effect of that offer should be an increase, probably small but nonetheless noticeable, in retirement rates at yoimger ages because of the response of eagerly alert workers. These initial responses set up an informational cascade. Other workers observe the decisions and the information base referenced by the decisions; the observations are not merely punctual elements of a collection but integrated comparison or relative-standing perceptions. Inasmuch as that information base is not uninterpretably ambiguous (its discemable bias correlates with the initial actors' decisions), a cascade of information—composed of the initial information base, the correlated decisions, and the comparison judgments of the perceivers—rather quickly shifts the central tendency of behaviors. The lower limit of the range of "normally expected" retirement ages (in effect, models of feasibility) shifts downward, to younger ages. Workers who had been otherwise favorably disposed to the idea of "retiring soon" are now likelier to do so, other factors being equal. Very few (if any) of them actually estimate their PDAV profiles. But the information to which they do respond is correlated with it. PDAV is a function of the initial value of an activated pension benefit (in the present instance, r = .89). Eligible workers both know that initial value and can rather easily assess its import to an expected retirement wage, relative to the current employment wage. They can also forecast the increment to an expected retirement wage that would accrue from an additional year or two of employment. Thus, even though the financial component of a worker's decisional calculus is almost surely much simpler than the actuarial calculus of PDAV, workers tend to choose retirement dates as if their deliberations were directly sensitive to that calculus. Of course, pension wealth, whether considered in itself or in relation to employment earnings, is usually not the only factor important to the re-

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tirement decision. Nor was it so for the auto workers. Many of the workers regarded some threshold level of retirement income as little more than a necessary condition, certainly far less than a sufficient condition. For these men the balance between the value assigned to alternative activities ("leisure time") and the attractions of continued employment in GM's plants—which is to say, the continuation of their career jobs—tilted decisively in favor of the latter. Indications of that preference have been apparent throughout the preceding analyses. But a summary indication can be appreciated from the following observations. Almost 83 percent of the workers had not retired by the end of the 1987-89 contract period. The majority of these men had fewer than 30 years of service behind them; whatever their attitudes about early retirement, life in the plant, and so on, the fact that they had not yet qualified for the maximum pension benefit unquestionably loomed very large in their thoughts. But what of the nearly two-in-five workers who had passed Year 30 (many of whom had even passed Year 35) and were still postponing retirement? Certainly their decisions did not accord with the actuarial logic of that portion of their compensation which had accumulated as pension wealth; for in those terms, every day of delay was costing them as if they had volunteered retroactive cuts in pay. Did they not understand that actuarial fact? Perhaps in a few cases. But one need not have actuarial skills in order to imderstand the basic concept, which no doubt lived in the stock of "common knowledge" grown from the experiences of previous cohorts of workers, and, on this point, was continually reinforced by advisory information from union and management officials (who were, after all, concerned to accelerate the flow of early exits). It is much more likely that these sticky workers did understand that delay entailed an erosion of pension wealth; but other factors were more important to them. Not surprisingly, a disproportionately large number of them said, in reply to the "reasons" question described at the start of this chapter, that they simply were "not ready to retire." They evinced strong attachments to their current employments—indeed, stronger than their employer wished. To recapitulate, our basic model of the early-retirement decision has afforded considerable understanding of the relative importance of a number of determinants and conditions of that decision. Obviously that understanding is limited in many respects, one measure of which is the fact that our model failed to identify one-quarter of the actual retirees. Some of the imperfection can be attributed to measurement errors and category errors in the several variables used as predictors in the basic model. No doubt, too, the observed distribution of retirement decisions contained some genuinely random effects. But neither of those factors, nor both in combination, would likely account for more than a small part of the predictive error. The larger part is almost surely due to the "missing variable" problem in

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model specification. Granted, one should guard against assigning too much significance to unmeasured variables. Freeman's tongue was only slightly in cheek when he (1989, p . 157) said that ''the invisible hand in the guise of the unmeasured variable, being invisible, can explain everything." But, as acknowledged earlier in this chapter, we not only are confident that the basic model is lacking relevant variables; we also have reason to think we know what at least some of them are, and for a few of these latter we do have measures. It is to the first set of these additional variables that we now turn.

NOTES 1. We have no independent measure of the quality of our respondents' knowledge of the eligibility rules and benefit structures. Given the ages of the respondents and the general circumstances of their employment, we assume that the bias was strongly in favor of more and better information. Conversely, any respondent who did not know his eligibility status had not been alert to any of the prevailing exit offers, presumably because his imaginations of retirement were still of an indefinitely distant future. 2. As described in Chapter 3, pension wealth is the worker's remaining-lifetime stream of private-pension income, adjusted by a real discount rate of .0275. Pension wealth is one of six components that can be assessed (assuming available data) in an analysis of the financial determinants of retirement. The others are (following Mitchell and Fields 1982, p. 138): the net earnings stream from current employment, the net earnings stream from an alternate (i.e., postretirement) employment. Social Security benefits, private-pension contributions, and Social Security contributions. Analyses based on all six components are rare because of the data requirements; in the present study, for instance, we had no access to OASI records. Our calculations of PDAV profiles for individual workers are as described in Chapter 3. Calculations for workers who had not retired at the end of the 1987-89 contract are based on the assumption of retirement under RERP at the end of that period. 3. The pertinent research literature is too large to document systematically. Major examples include—in addition to Barfield and Morgan's (1970) early study of retirement among auto workers, and Burkhauser (1979) reanalysis of those data—Boskin and Hurd (1978), Burkhauser (1980), Burkhauser and Quinn (1983), Burtless and Moffitt (1984), Diamond and Hausman (1984), Fields and Mitchell (1984a), Gordon and Blinder (1980), Hamermesh (1981), Hanoch and Honig (1983), Hardy (1982), Kotlikoff and Wise (1989a; 1989b), Mitchell and Fields (1984), Quinn, Brkhauser, and Myers (1990), and Stock and Wise (1990). A useful review of some of the early literature is available in Mitchell and Fields (1982). 4. In other words, depending on health and other circumstances, earnings from continued employment will more than offset losses in the present discounted

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asset value of the retirement income stream. Fields and Mitchell's (1984a) analysis of data from the 1978 Benefit Amounts Survey offers confirming evidence, though the effect was rather small (average retirement age was delayed less than 1 month for each $1,000 increment in the PDAV of the projected total income stream). 5. Since the probit-estimated relationship is nonlinear, the consequence of a unit difference in PDAV is variable—that is, depends on where in the PDAV distribution the unit difference is evaluated. 6. Following Maddala (1992, pp. 334-335), we will report "correct prediction" percentages as a measure of goodness of fit for equations estimated by probit (and later, logit) regression. Percentages will be reported for modal (i.e., "not retired") and nonmodal (i.e., "retired"; or, with multinomial logit equations, "retired via RERP" and "retired via SERF") categories of the dependent variable, as well as the weighted average ("overall") across the categories. But since these estimation techniques begin, in effect, with the assumption that all cases fit the modal category, we will give greater attention to the percentage of correctly predicted cases in the nonmodal category (or, with multinomial logit, categories). In other words, an equation that gives zero degree of fit to the observations will correctly predict 100 percent of the cases in the modal category and zero percent of the cases in the nonmodal category (or categories). 7. The difference of the Special Plan was to generalize that disincentive to seniorities yoimger than 30. We return to this difference in the actuarial rationality of the two plans later in the chapter. 8. This means that the coefficient for PDAV (.096) is now manifesting only the effects of pension-wealth variation that was not a function of age, service, and wage rate, plus the interaction between Age and Thirty Plus (i.e., the coefficient does not reflect the mediated effects of those variables). Our best estimate of the combination of the mediated effects is the coefficient for fitted-PDAV in column 4 (i.e., .008), which is virtually the same as the gross-effects coefficient (i.e., .007). Subsequent tables will retain this specification, since we have already established that pension wealth had a positive but quite small effect on the probability of early retirement. When testing sensitivities to PDAV, however, we will examine gross-effect specifications. 9. We replicated the analysis represented in column 6 (Table 4.2), but with APDAV in place of PDAV. The results were essentially the same as reported in column 6, except that the fit was weaker (only 45 percent of the actual retirees were correctly predicted). The coefficient for APDAV was significant and negative: the larger the PDAV loss associated with a 1-year delay the higher the probability of early retirement. 10. For example, at 25 years of service the combined direct effects of age and service are estimated as 6.00 -9.93 = -3.93 at age 50; as 6.60 -9.93 = -3.33 at age 55; and as 7.20 -9.93 = -2.73 at age 60. At 30 years of service the combined direct effects are estimated as 45.60 -60.74 = -15.14 at age 50; as 50.16 -60.74 = -10.58 at age 55; and as 54.72 -60.74 = -6.02 at age 60. 11. Halaby (1986) has argued that because the implicit tenure contract involves employee subordination to the employer's workplace authority, these affective rewards are better understood within the context of employee acceptance of an

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organization's governance structure as legitimate. Commitment to the organization implies that acceptance; employees accept their "authority costs" in the organization as reasonable. Thus, even workers who voice dissatisfactions with aspects of their jobs may be nonetheless bound to the organization by affective rewards accruing from social relations of the workplace (see Friedmann and Havinghurst 1954, p. 142; Halaby and Weakliem 1989; Bridges and Villemez 1994, pp. 154-158). Concerning implicit tenure contracts and marginal rates of pay, see Lazear (1981), Akerlof (1982), Hutchens (1987), and Rosen (1994). 12. In support of that assumption, consider that 35 percent of the nonretired workers, 38 percent of the SERP-retired workers, and 51 percent of the RERP-retired workers had worked overtime (40 or more hours per week) during "a t5^ical week" of the year prior to retirement (for the retirees) or of the year prior to interview date (for the nonretired respondents). The RERP retirees were significantly more likely (at p<.001) to have worked overtime; RERP retirees were better able than SERP retirees to anticipate (plan for) retirement well in advance of the eventual date, since the SERP opportunities came with little advance notice. (Note that "Overtime" was calculated from responses to a question which asked about "hours worked per week.") However, it should be recalled that because of the concessionary bargaining a contract provision which had allowed workers to refuse overtime requests was eliminated. Thus, working overtime was not necessarily a voluntary choice even among senior workers, although the principle of seniority still afforded some protection. 13. Because working overtime could have been in response to recent layoffs instead of (or as well as) in anticipation of retirement, we repeated the estimation after adding a dummy variable—Laid Off (coded 1, if the respondent had experienced a recent layoff)—even though our chief consideration of this variable comes later. The coefficient for Overtime was not significantly affected. We also tested for interaction between Overtime and Laid Off; there was none. 14. Auto workers classified as "production workers" include such semiskilled jobs as assembler, handler, and the like. The "skilled trades" have been traditionally divided into two sorts: the maintenance and construction trades (e.g., electricians, pipefitters, riggers, millwrights, carpenters), and the tool-and-die trades (e.g., toolmakers, machinists, machine repair), the second group having the higher status. 15. Judging from a test of the relevant interaction term, skilled workers were neither more nor less sensitive to PDAV than were the production workers. 16. Note that with both Age and Overtime in the model. Wage Rate becomes an approximate surrogate for the quantity of expected GM earnings (from current age to age 65, or later) a worker would have forgone by retiring at current age. (Wage Rate and Overtime accounted for 80 percent of the variance in respondents' current or preretirement GM earnings.) Also note that the argument we are making about the wage-rate effect does not necessarily assume that the auto workers were strict income maximizers, which would imply that they had assigned no value to "leisure time." We assume, on the contrary, that they did assign a nonzero (but individually variable) value to activities substitutable for their GM employments (including leisure in the sense of "no occupation"), and that this was complexly a part of the "utility" they sought more or less to maxi-

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mize. Our argument concerning the probable meaning of the wage-effect estimate is not altered. 17. We decomposed Household Income into respondent's GM earnings and "other source" (the exact composition of which is unknown), then re-estimated the equation. The coefficient for GM earnings (in thousands) was estimated as -.162 (s.e. = .016; p<.001) and for "other-source" household income (in thousands), as -.030 (s.e. = .006; p<.001); coefficients for other predictors were essentially as reported in column 1 of Table 4.3 (except that the point estimate for Overtime was somewhat higher). Note that whereas respondent's earnings were calculated from data on wage rate and number of hours worked, the data on total household income were self-reported and thus almost surely contain more measurement error than does the earnings variable. 18. Under only one alternative specification of the model could we force a switch in the sign. That specification included PDAV, Age, Service Years, Thirty Plus, Married, and an interaction between Married and Service Years. The signs and significance levels for the first four variables were as before. The interaction term was positive, and the coefficient for Married was negative; but neither was significant (at p<.05, one-tail test). 19. With respondent's earnings substituted for Household Income, and with Age removed from the equation, the coefficient for Wife Employed (-.290) is significant (at p<.01). Note that the test of Wife Employed was performed on the full sample, not just the married portion; with Married in the equation, this specification of the test is correct (see Cohen and Cohen 1983, pp. 274-279). We were unable to test the net effect of the dollar value of wife's employment earnings, for lack of data. Burkhauser's (1979, p. 72 n.l5) reanalysis of the Barfield-Morgan data indicated no net effect. 20. A number of studies (e.g., Burkhauser 1980; Butler, Burkhauser, Mitchell, and Pincus 1987; Chirikos and Nestel 1981; Parsons 1982) indicate that, because health status is a socially acceptable reason for retirement, the systematic bias of self-report measures of health results in a substantial overestimation of the effect of health on rates of labor-force withdrawal. Insofar as men are reluctant to admit difficulty in "keeping up," our measure might be less biased in that direction. In his reanalysis of the Barfield-Morgan data, Burkhauser (1979) used a more indirect measure of health—^number of weeks of work missed during the previous year—in order to avoid such bias. A comparable measure is not available in our data set. 21. An extensive literature recoimts both the hazards and the coping strategies. Examples include Walker and Guest (1952, pp. 146-147), Blauner (1964, pp. 99-100), Nash (1976, pp. 81-83), and Halle (1984, pp. 119-125). 22. We tested the interaction between PDAV and Keep Up both with and without the presence of the age, seniority, and wage-rate variables in the equation; regardless, the interaction was not significant. Other studies have reported evidence of sensitivity; the fact that we did not find any is perhaps a function of the fact that workers with the worst health were selected out of the population by the Disability plan. 23. We made parallel estimations of a probit equation, using the Barfield-Morgan data along with our own. Reasonably comparable measures were constructed

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for eight variables: Age, Wage Rate, Household Income, Married, Keep Up, Education (12+ years), "Nonwhite," and Replacement Rate (i.e., the ratio of pension benefit at retirement to monthly GM earnings). The coefficient for Keep Up in the Barfield-Morgan data was -1.035 (s.e. = .128); in our data, -.371 (s.e. = .121). 24. We tested a number of plausible interactions—for instance, that the comparative resistance to early retirement was lower among the African American workers who had accumulated 30 service years. The results of those tests consistently indicated a greater tendency to delay retirement. Bear in mind, however, that the African American portion of each of the samples is quite small, making intragroup comparisons difficult. 25. While this interpretation is plausible, consistent with other evidence, and probably accurate in the main, the reported estimate for Laid Off is compromised to some unknown extent by a temporal feature of the data set. When the workers were asked whether they had recently experienced a layoff, the temporal reference systematically differed, to some extent, according to whether the given worker had retired during the contract period or was still employed by GM at the end of the period. While the retirees' dates of retirement were distributed across the 3 years of the contract period, the distribution was skewed toward the earlier years—the chief reason being that, as a worker who was thinking of early retirement approached the end of a contract period, he was likely to postpone his retirement until the new contract period in order to take advantage of any improvements in the base-rate structure of the pension plans. Thus, whereas for most of the retirees the date of a recent layoff experience would have been sometime during the mid-1980s, for the nonretired workers the date of a recent layoff would probably have been slightly later, even as late as the then-ending contract period, 1987-89. This discrepancy opens the possibility that the underlying risk of a layoff systematically differed between the sample of retired workers and the sample of nonretired workers. 26. Of course, the seniority system was telling in that regard: junior workers were first in the queue to permanent layoff when a plant closed, and junior workers were likelier to be younger in calendar age, female, minority-group members, unmarried, and of lower income status (see Hamilton et al. 1990, Table 1). 27. The fact of plant closure also carried potential implication for the significance of a worker's recent layoff experience, since layoffs were not uniformly distributed across plants. It is possible that workers who had experienced a recent layoff were more reluctant to take early retirement (net of other factors), because they were manifesting variations across plants as much as or more than variations among individual circumstances within plants. More specifically, we hypothesized that workers who had been in plants that closed and who had thereby experienced layoffs would have been likelier to elect early retirement, other factors being equal, than workers who had experienced layoffs but not a plant closing. The interaction between Laid Off and Plant Closed was not significant, however. 28. There are several good treatments of the family of techniques, including Maddala (1983, Chapters 8 and 9), Greene (1993, Chapter 22), and Winship and Mare (1992).

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29. We tested Wife Employed, Household Size, and several pertinent interaction terms (e.g., PDAV with Keep Up, Skilled Worker with Keep Up); none was significant at p<.05 (two-tailed). Controlling year of retirement (i.e., 1987,1988, or 1989) did not alter any of the estimates. 30. With respect to Laid Off, it is evident from Table A.2 that once the difference of avenues of early retirement is controlled, the fact of having experienced a recent layoff did correlate with age at retirement. Workers who had had that experience were less likely to elect early retirement. But those who did retire despite a recent layoff tended to be older at retirement, unless they departed via the Special Plan. 31. Because the distribution functions of probit regression and multinomial logit regression differ, the resulting regression coefficients are differently scaled. Logit coefficients are approximately 1.6 times the size of corresponding probit coefficients (see, e.g., Maddala 1992, pp. 328-330). 32. Bear in mind that the coefficient for PDAV in this table is net of the direct effects of age and seniority. But the conclusion holds regardless. In terms of the PDAVimplicated effects of age and seniority, retirement was likelier under SERP than under RERP at any years of service until Year 30 (assuming ages younger than 62). But beginning with Year 30 retirement was likelier under RERP, especially at ages approaching 62. This pattern conforms quite well to the different actuarial rationalities of the two plans. We return to this matter momentarily. 33. This difference probably also reflected an awareness that at age 62 or older the market-wage alternative to the worker's current (seniority-protected) wage rate would not be good. As Burkhauser (1979, p. 72) speculated with regard to the comparable result from his reanalysis of the Barfield-Morgan data, in "alternative activities not protected by seniority, age is negatively related to opportunity wage and therefore negatively related to early acceptance" of the retirement offer. 34. In other words, the Y^ -Yj difference in coefficients for Thirty Plus (29.77)— augmented by the corresponding difference for Service Years (5.01), for a total difference of 34.78—^must be adjusted by the coefficient for interaction between Age and Thirty Plus. Thus, the difference between plans in the direct effect of 30 years of service is greater at age 50 (14.98) than at age 55 (13.00) and at age 60 (11.02). For a discussion of the uses of interaction terms, see Hardy (1993). 35. The evidence is ambiguous, however. While the positive net effect of Plant Closure is clearly significant for retirement via SERP, but well short of significance (at p<.05) for retirement via RERP, the difference between the point estimates is not significant. 36. We are referring to the sort of targeting proscribed by the Employee Retirement Income Security Act (ERISA) of 1974 (see Ippolito 1986b). We cannot rule out the possibility that such targeting occurred; but if it did occur (e.g., by transferring a particular worker to a plant that would later be closed), it was not detectable in our data. 37. Bear in mind, when comparing across those tables, that logit coefficients are approximately 1.6 the magnitude of probit coefficients. Once that adjustment is made, the two sets of coefficients are generally convergent.

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38. The informational and calculational burden that standard economic models assume of the actor usually far exceeds ordinary practice and even capability (see, e.g., Hausman 1992, pp. 227-244; Arrow 1987). Moreover, the evidence is that workers' knowledge of basic features of their pension plans tends to be rather sparse and inaccurate, although the amoimt and quality of information are probably age-dependent (Mitchell 1988). An analysis of longitudinal data from the Retirement History Study suggests that older adults make reasonably accurate contingent predictions of the OASI entitlements (Anderson, Burkhauser, and Quinn 1986). Bemheim (1988) similarly foimd that workers' forecasts of the OASI benefit amounts explained 60 percent of the variance in their realized amounts.

Discussing Options in an End-Game THE VALUE OF AN INFORMED DECISION The opportunity of a momentous decision—and deciding whether to retire or not, especially whether to retire early, is surely a momentous decision for most people—sometimes comes upon us without forewarning. It is often on such occasions that we appreciate most dearly the value of an informed decision. We think of a host of questions to which we would like to have answers, "if only there were time." Never mind that many, perhaps all, of the questions would lack definite, unambiguous, or unconditional answers even if time were plentiful. Confronted unexpectedly by a perceived need to decide now, we recognize very acutely the difference between the inadequacies of uncertain or imperfect information and the inadequacy of having to make a decision without information that could have been gathered had only time allowed. Most decisional opportunities, including the majority of those that have some claim to momentousness, are not wholly unannounced or unanticipated, however. They are preceded by markers of various sorts and varying degrees of reliability, advertisements of pieces of impending or probable futures. The organization of social life implies regularity enough for that, most of the time. Although in some instances the advertisements arrive barely before the deadlines which they announce, usually they afford at least a little time for preparatory activities, such as information seeking and evaluation, in advance of the needed decision. Indeed, the larger portion of this class of decisional situations can be viewed as "timing problems"—that is, deciding the optimal time to carry out an expected action. The retirement decision, especially the decision whether to retire ''early" or not, is an instance of this large subclass. Except under very unusual circumstances (and assuming death does not intervene), the fact of 135

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jntual retirement is not an unexpected occurrence, even for those of 0 have hopeful visions of "dying in the saddle" at some remarkably ced age. Rather, the retirement decision is normally about timing— ing, within some range of available options, the "best time" or the time," and then trying to enforce that choice. ecisions that fall within this general class of "timing problems" share iber of interesting features. Insofar as a person has some latitude in decisional dates in a calendar of events, timing the date more or less ally is itself an often difficult problem of evaluation, with important juences for the action in question. The latitude allows an initial 1 between "decide now" on present information and "learn now, deiter" on an augmented store of information. In general, more infor1 is better than less information, so the second of those strategic IS—"learn now, decide later"—should be the general preference (see, avage 1954, Chapter 7; Skyrms 1990, Chapter 4). But information L is not free of direct costs, and postponement of the needed decision carries discernible opportunity costs, sometimes direct penalties. )ver, the implied advantage of rational planning for an upcoming decan be easily stymied by the force of habit and sentiments—prolation, a reluctance to acquire new skills, an inclination to look for intion where one has always (thus, already) looked, and so forth, theless, in deliberations leading up to a decision one can in principle, time prior to the decisional date, elect first to engage in learning ex> as added preparation to the decision, on the assumption that the of the information gained will exceed the costs of the exercise, inLg the cost of delay (if any) in coming to the eventual time of decision, factors being equal, one should expect that persons with greater "i are likelier to make investments in information-seeking behavior, ise, such investments would be likelier when the decisional date is nate rather than remote and when the anticipated payoff of the L behavior is relatively high. he present chapter is chiefly concerned with aspects of the "learn iecide later" strategy in connection with the auto workers' deliberaibout early retirement. While a number of different information-seekhaviors could have been undertaken by some or all of the workers, :us on only one sort: the relatively low-cost behavior of discussing ipending decision with other people. With whom did the workers ;s the early-retirement decision? What factors affected their choices? advice, if any, did they hear? And to what extent did either the fact of isions with one or another potential informant or the content of the ? heard during those discussions affect the workers' decisions about retirement? These are the main questions addressed. In the next secre examine the patterns of workers' choices of potential informants.

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That examination is followed by a description of the dominant "message" (when there was one) garnered from the discussions. Then, in the last section, we return to our basic model of the retirement decision and assess (1) the extent to which workers who had engaged in discussions were more or less likely to elect early retirement and (2) whether, among those workers who had discussed their decisions with others, messages interpreted by them as encouraging of retirement affected their decisional outcomes. Some general caveats must be registered before we proceed. The data drawn upon in this chapter are not all that one would ideally want for the purposes at hand. They tell us virtually nothing about the processual characteristics of the discussions (frequency, duration, context, etc.) and very little about contents. Moreover, since the data are respondents' retrospective accounts, they are subject to measurement or category errors due to selective memory. Of course, any data based on recall are subject to errors of memory; even simple autobiographical data, such as "years of schooling completed," can be affected. But the problems tend to be more serious when the interview questions pertain to autobiographically coded episodes that involve inherently complex, elastic, ambiguous boundaries of meaning. As illustration, consider the question, "Did you discuss topic T with person P?" A respondent must take a number of implicit decisions which figure as prelude to an answer: What counts as a "discussion"? What are the boundaries of "topic T"? Should a mere mention of "topic T" count? How far back in remembered time should one search? And so forth. These implicit decisions about "what the question means" are always a venue of potential bias, as are the memories called upon. One of the biases of particular concern is cognitive consistency, or the tendency to revise memories, wittingly or not, by adding (and deleting) elements that do (and do not) "fit" a specific autobiographical "story line," remembering events that could or "should" have happened but did not, and so on. The more complex the information to be elicited by an interview question (as in questions about the contents of a conversation), the greater the opportunity for cognitive-consistency bias.^ While we will later consider the potential effects of this bias on major conclusions drawn from the data analyses, we have no independent means of estimating them, much less removing them. However, some comfort can be taken from recent research on the structure of recall processes, including the implicit memory sampling that is involved. Evidence from a number of studies indicates that recall accuracy is relatively high when the target of the recall is a nonroutine event and/or an event that otherwise has high salience, especially high emotional salience (Brewer 1986; Brewer 1988; see also Conway 1990; Schwartz and Sudman 1994; Slovic, Fischoff, and Lichtenstein 1982). Since the retirement decision was itself of considerable salience to the auto workers, and at least in most cases was a focus of more than usual levels of emo-

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tive energy, it is reasonable to think that the workers' talk about the decision would have shared in that salience, especially when the talk involved persons outside the respondents' networks of routine conversation. CHOOSING POTENTIAL INFORMANTS The selection of persons with whom to discuss an impending decision is doubtless affected by a variety of factors. Much of the selection occurs simply as a function of being in one locality rather than another. Other factors influencing the selection process tend to be embedded in the particular conditions under which the occasion of the decision arises. Still other factors are likely to figure as explicit selection criteria, in the sense that a decision maker deliberately utilizes them when seeking information. By the standards of rational decision theory, one particular criterion ought to be of paramount importance: the quality of the information obtained. One ought to select as informational sources persons who are most knowledgable of information relevant to the conditions, options, risks, and related characteristics of the specific decisional problem. Stated as a general principle, this prescription would surely win the assent of virtually everyone. However, while most people would agree, in the abstract, that the better the information on which a decision is based, the better the decision, two other factors, closely interrelated, typically play a larger role in the selection of information sources. One is availability; the other is social distance. By "availability" we refer to a phenomenon of the practical sampling behavior in which people regularly engage—^namely, the tendency to avail oneself of sources that are relatively familiar and close at hand. Certainly this tendency is not independent of situational context: some situations are richer in variety of information sources, and in variety of vivid sources, than are others; and qualities of the decisional problem for which information is being sought can stimulate unusual search behaviors. But in general, and within a large range of contexts, the tendency to seek information in familiar, close-at-hand locations, as opposed to using a search strategy that would maximize the likelihood of acquiring nonredundant information, is remarkably strong.^ This "availability bias," as it is often called, correlates with a second—namely, the tendency to entertain discussions, especially discussions about important personal matters, with those who are "near" us in a social distance sense. That is, we are more likely to engage in conversation with persons who are of similar social status, persons with whom we share activities and interests, persons who experience more or less what we experience and who are therefore likelier, we assume, to understand our situations and needs and wishes. Both biases are difficult to avoid simply because they manifest some rather common (and sturdy) structural fea-

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tures of everyday life: social relations are neither homogeneous nor randomly composed; actors' likeliest information sources correlate with prominent features of self-identity; the resilience of an identity formation tends to imply a "gravitational sink" in the total distribution of potential information sources; and so forth. As a result, search behaviors often neglect what has been dubbed "the strength of weak ties." When actors take advantage of their "weak ties"—which, by comparison to "strong ties," are greater in number, more heterogeneous, and more superficially implicated in self-identity formations—they are likelier to encounter novel information. To be sure, novelty is not in itself a solution. Nor is the availability or the social-distance criterion necessarily antithetical to the value of an informed decision. Seeking advice from those who are close at hand and of similar circumstances can yield valuable information precisely because such persons do more likely share something of one's experiences and understandings. But by comparison to "the advice of a stranger," the yield more likely reflects the interests and experiences already implicated in one's self-identity, and thus more likely confirms what one already thinks. Senior auto workers, eligible for early retirement and contemplating the "pros and cons" of it, could look to their contracts and the collateral materials supplied by GM and the UAW for information describing the technical details of each retirement plan. This information included the eligibility rules specific to each plan, the procedures for calculating the monetary amounts of the monthly benefits (with examples of such calculations for variously characterized hypothetical workers), and restrictions, if any, on postretirement employment.^ What the contract and collateral materials could not necessarily answer for any given worker, of course, was whether retirement "now" rather than "later" was the better choice in terms of all the various personal circumstances germane to the decision. In some cases, knowledge of the benefit amount (and thus the implied rate at which a monthly benefit replaced earnings) would have been sufficient to the decision. Workers whose benefits were low were not likely to take an early retirement even if various other considerations, such as dissatisfaction with the job or a preference for an alternative activity, made them favorably disposed to the idea; so there would have been little point to seeking the advice of others, since the decision was virtually automatic. Similarly, for workers who had been eager to retire, the mere fact of eligibility, combined with a suitably high level of pension wealth, would have been tantamoimt to a decision; if these workers discussed the decision to retire with anyone, it would have been less likely for purposes of information seeking and more likely an act of confirmation, even celebration. But the circumstances of many of the workers pointed much less definitively to ''the right thing to do" (or "the only thing to do"). On the one hand, their years of service qualified them for benefit amounts reasonably close to the

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maximum for their category (i.e., "benefit code"), and the implied replacement rates fell within the general vicinity of "financial feasibility"; on the other hand, deferring retirement to some later date would qualify them for maximum benefits, perhaps at a level enhanced by the next round of contract negotiations. On the one hand, their current employments were, if not entirely satisfactory, nevertheless sustainable and certainly preferable to any "second-best" job; on the other hand, the risk of indefinite or permanent layoff, including loss of recall rights, made the advantages of "later" over "now" a much riskier call than had once been the case in the automobile industry. In short, for these workers there could have been considerable point in discussing the early-retirement decision with other people. Discussions with whom? Instead of posing an open-ended query, we asked our respondents about specific categories of potential informants.^ For reasons outlined above (the tendency to select informants on the basis of availability and social-distance factors, as well as from considerations of "expertise"), three categories of persons associated with the workplace form our analytic framework: co-workers, UAW's plant representatives, and GM's personnel representatives. We assume that those three categories (as listed) differ in descending order of availability and in ascending order of social distance. We also assume that technical information obtainable from union and management representatives was more detailed, and more accurate in details, than corresponding information obtainable from coworkers. The greater social distance of management officials, combined with the likelihood of workers' awareness that the very fact of soliciting information from management was a form of signaling behavior, implies that discussions with GM's personnel representatives would have been improbable in the absence of serious intent to retire. Bear in mind that all of the members of the sampled population were eUgible to retire under terms of the Regular Plan. Any eligible worker who had decided to retire needed only to complete a set of forms in order to initiate the process. Opportunities for preretirement coimseling were regularly available, and while this provision no doubt did function as a "ceremonial good"—demonstrating to employees and other constituencies the company's concern for employee interests (Meyer and Rowan 1979)—it also offered a venue for discussions of issues cormected with retirement. But eligible workers who were ready to retire via the Regular Plan (RERP) were neither required nor necessarily expected to discuss their decisions with anyone, union and management officials included. Procedures for retirement under the Special Plan (SERP) were somewhat different, in that management had reserved the right to limit the total number of SERP exits at each location. In practice, however, the limit was never approached (e.g..

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the goal in 1988 was 7,500 SERF retirements, but the actual number was not half that). The data base for our analysis consists primarily of interview responses to three pairs of questions. All respondents, both those who elected early retirement during the contract period and those who did not, were asked whether they had discussed the retirement decision with specified others: (1) "with your co-workers," (2) "with the uiuon representatives," and (3) "with management, that is, with personnel representatives." Respondents who replied "yes" to any one of those three questions were then asked, in immediate follow-up, "Did they [i.e., co-workers, union representatives, or management]encourage you to retire, did they discourage you from retiring, or didn't they take a position on this?" Responses to the set of follow-up questions will be treated later. Here our focus is on the first set of questions: Who talked with whom? The "tree analysis" shown in Figure 5.1 outlines the network of choices across the three categories of informants—ordered from co-workers to union representatives to management, in keeping with our assimiptions about availability and social distance. Note that the eight possible combinations in the network of choices have been enumerated in sequence from left to right and, simply as referencing device, will be called "patterns" of choice. Four of the eight patterns (those numbered 1, 2, 4, and 8) account for just under nine-tenths of the full sample of weighted cases. Several "selected characteristics" descriptive of the respondents represented in each of the eight patterns are provided in a panel at the bottom of Figure 5.1. Almost a third of the workers reported no discussions with persons of any of the three categories. The most plausible explanation of that fact is simple: these workers had no intention of retiring any time soon. While this "lack of intention"—or, conversely, this intention to continue employment with GM—can be regarded in one sense as the product of a decision, it probably resulted more as an inertia of conditions than as the outcome of a studied deliberation of options. Some of the "selected characteristics" of those workers support that explanation. As a group, the workers represented in pattern 8 were relatively distinctive in years of service (only 40 percent had 30 or more years), in the proportion saying they had experienced no difficulty in keeping up with their work (92 percent), and in mean pension wealth ($118,000).^ All three characteristics imply that, at least on average, there would have been little point to asking anyone whether retirement "now" rather than "later" was the better option. Granted, averages can mislead; but in this instance they do not. To anticipate an analysis presented later in this chapter, 88 percent of the workers who reported no discussions postponed retirement beyond the end of the contract period. And for the few (12 percent) who did retire without having discussed their

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Discussed with Co-Workers?

Yes 61%

No 39%

Discussed with Union Rep.?

Discussed with Management?

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

58 29 152 82 16 58 84 10 6 64

53 28 139 83 12 57 84 10 2 75

45 28 133 83 18 58 89 8 1 79

41 26 123 90 9 57 91 8 3 82

61 31 169 88 18 58 95 5 4 65

58 30 146 82 18 58 91 14 1 77

65 29 151 85 7 57 87 13 2 91

40 26 118 92 17 57 87 21 5 79

Selected Characteristics 30+ yrs service {%) mean service years mean PDAV (000s) keep up OK (%) aged 62+ (%) mean age married (%) African American(%) Hispanic (%) easy decision (%)

Figure 5.1. Tree Analysis of Respondents' Choices of Potential Informants.

decisions with co-workers, union representatives, or management, the relevant characteristics had very different average values. When discussions of the retirement decision were undertaken, as they were in the majority of cases, the most common parties were co-workers. Six of every 10 of the sample members—^which is to say nearly everyone who had discussed the decision at all—reported that they had talked about the decision at least with their peers. By contrast, only a quarter reported discussions with UAW representatives; fewer still (15%), with GM's personnel representatives. An inspection of the patterns of informant choices in Figure 5.1 suggests that those comparative percentages reflect an ordered set of contingencies in the workers' selections of persons with whom to discuss the re-

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tirement decision. Our data are silent, unfortunately, about the temporal sequencing of discussions; we do not know, for instance, whether workers who talked with management representatives about the decision had already talked with their union representatives and, before that, with their coworkers. The results in Figure 5.1 are consistent with the hypothesis that discussions with management were unlikely unless the given worker had already consulted with union officials, which in turn was unlikely if the worker had not talked with his co-workers about retiring "now" rather than "later." But direct evidence of sequencing cannot be constructed from the data. It is in any case clear that nearly all of those who had talked with management had also discussed the retirement decision with at least one of the two other categories of informants; and most had done so with both. In other words, the results shown in Figure 5.1 accord rather well with our assumptions that the three ordered categories manifest an underlying cumulative dimension.6 That dimension, we have argued, is a combination of two factors, social distance and availability. It could also be interpreted— not inconsistently with those two factors—as indicative of the degree to which a given worker experienced the retirement decision as a difficult one to make. If engaged in a "first learn, then decide" strategy of decision making, a worker had no shortage of readily available sources of advice in his shop floor colleagues. The network of social interactions in an assembly plant is anchored to that unrelenting cacophony of time and motion which imites machinist and materials handler, assembler and inspector, repair specialist and maintenance worker, in a continuous hustle of metals testing mettle— otherwise known as "the line." A staple of life for everybody on and around the assembly line is casual talk, the sort of banter that helps to relieve tedium and quicken the passage of "company time." Much of what transpires in shop floor talk is heavily ritualistic, filled with seemingly irrelevant, disconnected, inconsequential exchanges which have no apparent bearing on the calculational rationality of a decision model. Yet very often it is just that sort of superficially fragmented, "noninstrumental" talk— heavy on "noise" and light on "signal"—that houses learning behaviors through which a highly specific organizational rationality is most effectively (because subtly) reproduced in and as the a priori assumptions of individual members' definitions, evaluations, and expectations (see Boden 1994 for an especially sensitive demonstration). For senior auto workers, it stands to reason, concerns about retirement, especially early retirement, repeatedly figured in the casual talk. And in fact their reported discussions with co-workers frequently carried some sort of advisory content—or at least our respondents frequently heard an advisory content, even if it amounted to nothing more than inferences derived from the daily banter.

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Because ritualistic talk is strongly conserving, probably most responses from co-workers were mainly confirmatory, rehearsing the standard repertoire of scenarios and in the process replaying and reinforcing signs of an incipient decision. For a worker facing what he deemed an easy decision (e.g., a worker who had been "waiting for this, my 30th year"), a confirmatory message was really all that was called for. The decision was not always so easy, however. For a worker who was short of 30 years, short of the maximum benefit level, and feeling the pressures of a plant closure, an opportunity to retire under the Special Plan offered a way out, but it could be an opportunity fraught with ambiguities and conflicting implications, requiring the worker to sift through a grey area of second-best alternatives. Or, consider a worker who, already past the 30-year mark and not ready to relinquish a career job for activities that might prove to be less satisfying, has just been reminded that continued deferral of retirement could end in both an indefinite or permanent layoff and loss of the added incentives of the Special Plan. The more difficult the decision, the less likely discussions with co-workers would have yielded information helpful to the point of difficulty, and the more likely a worker would have sought advice from his union and/or from management. The preceding paragraph is largely a texture of conjectures, made without benefit of detailed accounts of the contents of reported discussions. We have one set of evidence, however, that bears directly upon a major component of the argument. All of the sample members were asked whether the decision to retire or to continue their GM employments had been an easy or a difficult one to make. Overall, most of the workers (79 percent) remembered it as "easy," with only a small difference between those who decided in favor (73 percent) and those who decided against (80 percent) retirement. But the question of interest here is whether the minority of workers who remembered the decision as a difficult one were more likely to have discussed it with their union representatives and/or with management. As the following comparisons indicate, they were. Among those who described the decision as "difficult," 62 percent had discussed it with their co-workers, 33 percent had done so with their union representatives, and 20 percent had done so with management. The corresponding percentages among those for whom the decision had been "easy" are 60, 23, and 14 percent, respectively. The percentage difference pertaining to discussions with co-workers (62 versus 60 percent) is not statistically significant. But each of the two other comparisons—33 versus 23 percent for discussions with union officials and 20 versus 14 percent for discussions with management—is significant (at p<.001). It is also true that those who talked with union and/or management officials tended to share characteristics that would have made them more

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rather than less favorably disposed to an early retirement. Indications of this can be seen in some of the comparative statistics displayed in the lower panel in Figure 5.1—in particular, the comparative figures for service years (Thirty Plus), for pension wealth, and for the measure of health capability. These comparisons stand out most clearly if one focusses on the ninetenths of the respondents whose patterns of informant choice were consistent with our assumption of a scaled gradient across the three categories of informants—in other words, the patterns numbered 1, 2, 4, and 8. For instance, the proportions of respondents who had at least 30 years of credited service are 58,52,41, and 40 percent in those respective patterns. Likewise, mean pension wealth ranges from $152,000 to $139,000, $123,000, and $118,000; the proportions who reported no difficulty in keeping pace with their work assignments, from 82 to 83, 90, and 92 percent. Although some of the differences are small, the distributions do tend to suggest a very reasonable conclusion: conditions that would have prompted the auto workers to think very seriously about the possibility of early retirement also made them more inclined to seek information from uruon and management representatives. This suggestion is consistent with our conjecture (and supporting evidence) that workers who found the retirement decision to be difficult more often consulted with the union and/or with GM's personnel representatives. After all, reaching a decision would not likely have been difficult for someone whose circumstances did not render early retirement an option worthy of serious consideration. In fact, there was very little selectivity, at least in terms of the range of variables in this data set. Not that the workers' choices of informants amounted to a random sampling (or that their memories simulated the outcome of a random sampling); information-seeking behavior did vary in some theoretically expectable ways (see Table 5.1). For example, since wealthier persons tend to discount future states at a lower rate, they are more apt to seek information about alternative future states when facing a "timing problem" decision. The data agree with that expectation insofar as workers with higher pension wealth were likelier to have discussed their retirement decisions with union and/or management officials.^ Likewise, workers who were older (especially if they had 30 or more years of service), who had difficulty in keeping up, who had foimd the decision difficult, and/or who were less sticky were likelier to have undertaken discussions with uruon and/or management. But the predictive efficacy of the sum of these relationships is very anemic (as judged by the small proportions of noimiodal cases correctly identified). As for the other category of potential informants, co-workers, the results in colunm 1 generally reinforce our conjecture that these discussions had been mainly instances of casual talk, engaged in more or less indiscriminately by everyone.^

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Table 5.1. Status Effects on the Selection of Infonnants: Probit Coefficients (Y s 1 if Discussed with Persons of Designated Category) Discussed with co-workers

Discussed with union

Discussed with management

Constant

1.021 (.812)

-.182 (.969)

-2.882(1.076)

PDAV (000s)

.001 (.002)

.019* (.003)

.014* (.003)

-.014 (.014)

.005 (.017)

.038^ (.018)

.006 (.010)

-.059* (.012)

-.041* (.013)

Thirty plus

.047 (2.025)

-11.543* (2.228)

-5.832" (2.328)

Age X thirty plus

-.003 (.033)

.186* (.037)

.089^ (.039)

Household income (000s)

-.001 (.002)

-.003 (.003)

-.010(.003)

Keep up

-23V (.101)

-.418* (.102)

-.293(.113)

Education: 12+ yrs

.219(.069)

.018 (.076)

.174^ (.087)

African American

-.547* (.093)

-.182 (.107)

-.198 (.125)

Hispanic American

-.258 (.172)

-.101 (.192)

.184 (.205)

Plant closed

-.005 (.081)

.480* (.086)

.092 (.099)

Easy decision

-.023 (.077)

-.285* (.081)

-.241(.090)

Age Service years

-Log likelihood Predicted(%) Discussed Not Overall OLS adjusted R^ 'p < .01 *p < .001 'p < .05 (two-tailed tests)

880

U18 91.6 12.7 61.0 .04

23.9 91.6 60.1 .10

670 2.7 98.6 72.1 .06

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WHAT ADVICE DID THE WORKERS HEAR? The majority of the auto workers had discussed the retirement decision with at least one of the three categories of potential informants, usually their shop floor colleagues. What information did they obtain from those conversations? How useful was it? Lacking detailed accounts of content, we cannot say when or what portion of the discussions consisted in efforts of clarification and confirmation (e.g., of benefit entitlements, of options, etc.), or in attempts to gauge prospects of layoff or job transfer, or in more or less direct solicitations of advice (questions of the "What do you think I should do?" sort). Nor do we have what ideally would be wanted— namely, "before and after" measures which would enable us to assess the extent to which information conveyed during the conversations altered the workers' initial dispositions. The most we can say about content is whether it included information that, from the given worker's point of view, amounted to a recommendation. More specifically, we have the respondents' reports of whether the persons with whom they talked had encouraged them to take early retirement, had discouraged them from doing so, or had not made a recommendation one way or the other. These reports, it must be emphasized, are statements of what our respondents heard (and remembered) their informants as having said, not of what the informants themselves thought they were saying. As well, since the discussions with co-workers (if not also the discussions with union and management) probably involved multiple participants, and probably occurred intermittently over some interval of time, the reports must be regarded as statements of what our respondents heard the dominant message to have been. The fact that these data consist of respondents' interpretive distillations of the various conversations is appropriate to present concerns, inasmuch as our ultimate interest is in the possible effects of the workers' perceptions of advice received. Nevertheless, an elaboration of our earlier caveat about cognitive-consistency bias is in order. It is probably true—we assume it is true, though we lack data bearing directly on the question— that the auto workers had been as prone to selective hearing (as well as to selective retention) as are people in general. One tends to hear foremost (and remember best) what one is prepared to hear, what one expects to hear, and to some extent what one wants to hear. There is no reason to think that the auto workers behaved any differently, on average, in that respect. By the same token, however, the general tendency to hear what one is prepared to hear—and even more, what one wants to hear—occurs most often, and most effectively, when one enters discussion with a relatively wellformed preference and expectation concerning the given point at issue. We do not presume that any of the auto workers had been without at least a general sense of preference about the timing of his retirement. Indeed, the

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evidence indicates that many of the workers had held a very specific preference. Judging from their behavior, approximately 1 in 12 had been looking forward to the day when they would qualify for retirement under the "30 and out" provisions of the Regular Plan; when that day came, as we saw in the preceding chapter, they departed.^ And about one in five were apparently not ready to retire despite having passed the 30th year of service and having thus qualified for maximum pension benefits. But as we also saw in the preceding chapter, still other workers had apparently preferred to continue their GM employments past the 30-year mark but then reconsidered when the opportunity of an early exit via the Special Plan arose. For some of these latter men, and perhaps for others as well, the opportunity of SERP involved ambiguities and conflicting evaluations which could have easily undermined confidence in initially held preferences. In short, there is reason to think not only that prediscussion preferences or dispositions varied in clarity and strengtti of commitment but also that this variation might have correlated nontrivially with factors directly conditional to the retirement decision (e.g., qualification for "30 and out") as well as with the likelihood of selective perceptions of the contents of a discussion. With that added caution in mind, we turn to the data. Table 5.2 summarizes the advice perceived (i.e., the "message heard") by those workers who had discussed the retirement decision with persons of at least one of the three categories of informants. Note that this table is organized as three separate panels, one for each of the three categories of informants. Also, a control for seniority is introduced, partly with an eye to the potential complication described in the previous paragraph and partly because of the expectation that any advice given by the ii\fonnants would have been at least somewhat sensitive to the worker's level of seniority—in particular, to whether he had reached the 30-year mark or not. As can be seen from the first row of each panel, the workers most often thought their informants took "no position" on the retirement question. This perception was less common with reference to co-workers (p<.001 by X^ test), although the difference is small. But in general, slightly more than two-thirds of the auto workers who had engaged in discussions recalled that their informants had attempted neither to encourage nor to discourage a decision in favor of early retirement. On the other hand, when the worker did discern some advisory content, there was a striking difference by source. The advice of both union officials and shop floor colleagues was more often perceived as encouraging rather than as discouraging of early retirement—^by ratios ranging from about 2.5 to 1 to about 5 to 1, depending on the worker's seniority level (the difference by seniority is significant at p<.01 by x^ test). By contrast, when the workers perceived a recommendation from management, it was more often discouragement that they heard, regardless of seniority level. ^^

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Table 5.2. Advice Heard by Workers Who Discussed Retirement Decision, by Source of Advice and Worker's Seniority Service years Source

Advice heard

Total

30+

<30

Coworkers

No position Encouraged Discouraged Ratio: row 2/row 3 BaseN

65.0 26.9 8.1 3.3 4,213

68.2 26.6 5.2 5.1 2,274

62.3 27.0 10.6 2.5 1,939

Union

No position Encouraged Discouraged Ratio: row 2/row 3 BaseN

71.1 21.8 7.0 3.1 1,746

74.0 20.9 5.1 4.1 771

67.6 23.0 9.5 2.4 975

Management

No position Encouraged Discouraged Ratio: row 2/row 3 BaseN

71.0 12.6 16.4 0.8 1,039

68.9 13.6 17.5 0.8 467

73.7 11.3 15.0 0.8 572

Note: Percentage distributions are of responses to the question, "Did they [i.e., co-workers, union representatives, or GM's personnel representatives] encourage you to retire, did tiiey discourage you from retiring, or didn't they take a position on this?" "Base N" is the number of respondents (weighted cases) who said they had discussed the retirement decision with co-workers, with union representatives, or with management representatives.

Why this latter difference? Why would the "message" heard during discussions with GM's personnel representatives have been more often discouraging of retirement? All three categories of informants had important interests at stake—management and union, because of the agreed need to reduce "excess labor" through (among other means) accelerated rates of retirement; co-workers, because of the implicit competition for job security (i.e., avoiding layoff or imdesired transfer to another plant) in a shrinking internal labor market. Insofar as these interests were expressed in the discussions, the resulting tendency for all three categories of informants would have been to encourage, rather than to discourage, a worker who was seriously considering early retirement. Of course, there were also some important countervailing interests in play, especially on the part of coworkers (shop floor solidarity, camaraderie, personal ties) and on the part of the union (defense of the rights and interests of individual members, as well as those of the collective membership). These countervailing interests could have dampened "discouraging talk" by co-workers and union repre-

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sentatives. But then were there no equivalent countervailing interests on the part of management? One possibility is that GM's personnel representatives had simply exercised greater caution about making statements that could have been interpreted as "plumping for retirement," with the result that what they did have to say was more easily heard as discouragement. This has a certain plausibility; but without at least audio records of the conversations we cannot test it. Nor can we test the related possibility that workers approached discussions with different expectations, and/or were prone to different selectivities of perception, depending on whether the discussions were with management or with union officials. However, there is reason to think that at least part of the explanation lies in another set of circumstances, for which we do have some evidence. Bear in mind, first of all, that a relatively small number of workers ever got to the point of talking with management about the possibility of taking an early retirement. Fewer still came away from the discussions believing that management had offered either encouragement or discouragement in the matter. Those who did were a nonrandomly selective group. Workers were generally unlikely to initiate discussions with management imless they were seriously considering retirement, which in turn implies that they tended to be selective on a number of other characteristics such as years of service. Of course, the same can be said with regard to discussions undertaken with UAW officials. However, another selectivity, this one pertaining particularly to discussions with GM's personnel representatives, is evidenced in the data. The relatively small pool of workers who talked with management included some skilled workers, as did the pool of workers who talked with their union representatives. But while skilled workers comprised virtually the same proportion of all workers who talked with union officials as who talked with management (the difference is not significant at p = .05), the skilled workers who talked with management were more often discouraged than encouraged by what they heard (by a ratio of 2.6 to 1), whereas skilled workers who talked with their union representatives were more often encouraged than discouraged (by a ratio of 2.9 to 1). This rather striking difference (significant at p<.001 by x^ test) contrasts with the absence of a corresponding difference among the production workers. In sum, while management was no less interested than UAW officials in accelerating the overall rate of early retirements, management was more specifically concerned about the composition of that rate. They preferred not to lose skilled workers, especially the more highly skilled of the skilled workers, given the costs involved in replacing them. The union, on the other hand, could afford to be more supportive of any worker's interest in retirement, regardless of skill level. And early departures among the more senior skilled workers created highly valued opportunities for advancement within the internal labor market.

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EFFECTS OF DISCUSSION ON THE DECISION

What impact, if any, did the auto workers' discussions have on their eventual decisions? More particularly, did the mere fact of discussions, whatever the content and the motivations, make a difference in decisions about the timing of retirement? And, when discussions did take place with one or another category of potential informants, did the dominant perception of any advisory information learned from the discussions make a difference? Lacking measures of dispositions both before and after the discussions occurred, we cannot assess the extent to which "minds were changed," initial preferences and dispositions confirmed or disappointed, and so forth. But we can examine the extent to which both the mere fact of discussions and any perceived recommendations from them—that is, encouragement, discouragement, or neutrality—correlated with the workers' subsequent behaviors. Both of those aspects of the question of impact are address in Table 5.3, which reports rates of retirement via each of the two retirement plans. Note that this table, like the preceding one, is organized in panels— one for each of the informant categories—and by level of seniority. The first row within each panel reports the proportion retired among those respondents who said they did not discuss the retirement decision with persons of Table 5.3. Rates of Retirement by Discussion Status, Advice Heard, Seniority, and Retirement Plan 30-H service years

Co-workers Did Not Discuss No Position Encotiraged Discouraged Union Did Not Discuss No Position Encouraged Discouraged Management Did Not Discuss No Position Encouraged Discouraged

Under 30 service years

RERP

SERP

BaseN

RERP

SERP

BaseN

18.2 15.1 32.4 17.8

10.5

1,208 1,322

1.1 0.4 0.8 0.8

7.6 7.8 9.4 6.2

1,587 1,417

0.5 2.1 1.7 2.7

3.9

3,090

24.2 29.4

8.2

521 177 73

5.5

3,394

21.5 56.6 20.0

344 53 70

in 7.9

516 101

13.2

13.4 31.9 40.2

6.5

2,172

14.8 27.9

6.0

0.0

721 204 50

15.4 36.3 48.7 28.0

7.1

2,575

21.1 39.7

394 78 100

7.0

0.5 2.3 7.5 0.0

Note; Base N is the number of weighted cases on which the given retirement rate is based.

615 242

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the given category of informants. (Thus, to take an illustrative distribution, of the 1,208 weighted cases of respondents with 30 or more years of service who did not discuss with co-workers, 18.2 percent retired via RERP and another 10.5 percent retired via SERF, leaving 71.3 percent who had not retired by the end of the contract period.) The second, third, and fourth rows of each panel report proportions retired among those who did discuss with persons of the given category, by type of advice heard during the discussions, as well as by seniority. As point of departure, recall that the average rate of retirement across the full sample of weighted cases was slightly greater than 17 percent. Relative to that average, the rates displayed in the table vary enormously— from a low of less than 5 percent (among workers with fewer than 30 years who did not discuss the retirement decision with their uruon representatives) to a high of 88 percent (among workers with 30 or more years who heard encouragement from GM's personnel representatives). The most conspicuous part of the variation is associated with the difference in seniority level; there is nothing new in that. But rates of retirement within each of the seniority categories also vary rather substantially, and it is on this variation that we will now concentrate. Two questions are of chief interest: Do the rates of retirement correlate with the fact of discussions? And do the rates correlate with the advisory information perceived by those workers who had engaged in discussions? In general, the answer to both questions is "y^s." Retirement was likelier when discussions occurred, even more when the discussions yielded advice perceived as supportive of retirement. However, both parts of that generalization need to be qualified in two respects. First, only 30 workers who were short of 30 service years retired via RERP. Thus, while the rates shown in that column of the table do tend to agree with our general characterization, they are based on a very small number of cases. Second, and of greater substantive interest, our general characterization better fits the middle and bottom panels, which pertain respectively to union and management officials as informants, than it does to the top panel, which pertains to co-workers. A detailed comparison of rates across panels suggests that while the fact of discussions with either union or management was clearly associated with a higher rate of retirement, the corresponding association for discussions with co-workers was very weak at best. It is true that workers with at least 30 service years who heard encouragement from co-workers retired at a rate (46 percent) significantly higher than the rates of those who heard either discouragement (26 percent) or "no position" (23 percent). But as an indication specifically of the impact of discussions with co-workers, that difference is doubtless attenuated by the fact that some of the workers who had talked with (and had heard encouragement from) their shop floor colleagues

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had also talked with union and/or management representatives. Thus, the observed difference in retirement rates could be linked as much (or more) to discussions with the latter parties as to discussions with co-workers. This question of net effects will be considered systematically in an analysis still to come. For the moment, we return attention to some relevant evidence from the tree analysis presented in Figure 5.1, Recall that four of the eight possible patterns of informant choices—specifically, the four that "scaled" consistently in terms of our assumptions about availability and social distance—accounted for the choices of nine-tenths of the full sample of weighted cases. The rates of retirement associated with these four patterns are (by pattern number): (1) 52 percent, (2) 26 percent, (4) 7 percent, and (8) 12 percent.^! Now, it is quite apparent that workers who had talked with persons of all three categories of informant retired much more often than did those who had talked with none (52 versus 12 percent). But it is also apparent that workers whose informant choices fit the most populous of the patterns, pattern 4 (with 37 percent of the weighted cases), had the lowest retirement rate (7 percent); and these workers talked only with their co-workers. Moreover, the workers whose choices fit one of the patterns that, by our assimiptions, manifest inconsistency—namely, pattern 5 (with only 1 percent of the weighted cases)—^had by far the highest rate of retirement (76 percent), and they talked with both union and management but not with co-workers.i2 These comparisons confirm the conclusion we tentatively drew concerning the top panel of Table 5.2: if discussing the retirement decision with persons who could potentially offer helpful information and advice made any difference in the worker's eventual decision to retire "now" rather than "later," it was because those discussions were held with someone other than co-workers. As we conjectured before, however, the motivations and contents of talk with co-workers probably had less to do with deliberate information seeking and more to do with rituals of camaraderie (imagined scenarios of "telling the boss what he can do with this job," anticipations of "life after years of punching the clock." etc.) and, perhaps more poignantly, rites of passage for those workers who were "taking the big step" into retirement. Whereas the evidence casts strong doubt on the notion that discussions with co-workers had any appreciable impact on the likelihood of retirement, a different conclusion seems warranted by the evidence pertaining to discussions with union and/or management representatives. According to the rates shown in the middle and bottom panels of Table 5.3, workers more often retired if they had engaged in such discussions than if they had not. And, among those who had talked with union or management, retirements more often followed when they thought they had been encouraged to take that course of action. Indeed, considering only workers with at least 30 service years, two of every three who had heard encourage-

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ment from the union and nearly 9 of every 10 who had heard encouragement from management elected early retirement under one or the other plan. The proportions are much smaller among workers who had not reached the 30-year mark, of course. But even here, it is worth noting, almost two-thirds of those who heard encouragement from GM's personnel representatives decided to retire, virtually all of them via SERF. One other specific comparison of the retirement rates in Table 5.3 merits attention. It is apparent that when union officials were heard as offering advice against retirement, the workers' decisions almost always coincided with the perceived message. Thus, only 6 percent of those who had reached or passed Year 30 and who thought the union had advised against retiring did in fact retire. By contrast, the corresponding percentage among those who reported that management had been discouraging was much larger (35 percent). Again, we cannot rule out the possibility that some of this difference manifests a tendency of workers to expect to hear, and thus to hear, "negative" messages from management more often than from their union. But at least part of the difference relates to a point previously made about relative interests at stake when skilled workers signaled plans to retire at an "early" age. In general, as we noted before, management was likelier to attempt dissuasion in these cases than were union officials. And, as it happens, a disproportionately large number of the workers who heard what they believed to have been discouragement in their talks with management were skilled workers. Many of them retired despite management efforts to dissuade them of their decision, and that fact is reflected in the comparatively high retirement rate (35 percent) shown in Table 5.3. One-third of the "30 and out" retirees whose decisions to leave were contrary to (their perception of) management's preference were skilled workers. By contrast, only 18 percent of the workers who were encouraged by management and who retired via the "30 and out" provisions of RERP were skilled workers. To recapitulate the main evidence of Table 5.3, rates of retirement were generally higher when discussions with union and/or management officials (through not co-workers) had occurred than when not, and when information gained from the discussions was thought to have been encouraging rather than discouraging or neutral. These correlations are sensible. The problem is, there are too many alternative, partially competing ways in which sense can be made of them. Our task now is to evaluate alternative interpretations of the correlations in order to arrive at a more considered answer to the question. Did the discussions matter? One, perhaps the simplest, interpretation attributes the observed correlations primarily if not entirely to selective effects of cognitive-consistency bias. It is certainly conceivable that the retired workers, by comparison to those who had not retired, more often remembered discussions—both discussions that had actually occurred and discussions that

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had not. Likewise, it is conceivable that the contents of discussions were more often selectively remembered as encouraging of retirement among those who retired, less often among those who continued their employments with GM. The issue is not whether those tendencies were operative—we suspect they were, to some extent—^but instead whether they were strong enough to render the observed correlations wholly spurious as indicators of the effects of discussion. Ultimately, the issue must be left unsettled, for we are without the means of undertaking this irJierently difficult assessment. But as will become clear momentarily, a "cognitive-consistency" explanation, if correct, would have to fit a set of relationships rather different from the correlations apparent in Table 5.3. Let's assimie, as point of departure to an alternative interpretation, that selectivities in the effects of cognitive-consistency bias do not render the correlations completely spurious. There is still another selectivity effect that must be considered, this one embedded in our continuing assumption that the auto workers would have been unlikely to discuss the retirement decision with union or with management representatives unless they had been seriously deliberating the advantages and disadvantages of retiring "now" rather than "later." As noted earlier, to assume as much is tantamount to assuming that those workers who did undertake discussions were self-selected on traits that correlate highly with the likelihood of retirement—in which case the correlations observed in Table 5.3 would simply reflect that self-selection. And as we saw in Table 5.1, the principal traits on which one would expect self-selection (pension wealth, difficulty in keeping up with the pace of work, etc.) do in fact predict the occurrence of discussions. The efficacy of prediction is very low, but even weak selectivities could attenuate the correlational evidence of Table 5.3. This possibility can be directly assessed with the data at hand. In order to do so, we return to our basic model of the retirement decision, last considered in Chapter 4. Table 5.4 reports multinomial logit coefficients from two regressions. In each the dependent variable is defined (as before) in terms of three-end states: YQ = 1 if the respondent was still employed by GM at the end of the contract period; Y^ = 1 if the respondent had retired via the Regular Plan (RERP); and Y2 = 1 if the respondent had retired via the Special Plan (SERP). The predictors for the regression reported in the left half of the table include only those shown—the nine binary-coded variables representing the occurrence of discussions and the advice heard during discussions. The predictors for the regression in the right side of the table include those nine variables plus the 17 predictors from the final version of our basic model (as it was represented in Table 4.5). Note, however, that coefficients only for the nine "discussion and advice" variables are shown in Table 5.4, since these are the chief focus of interest here (and since—a point we return to later—coefficients for the 17 variables of the basic model are

Chapters

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not significantly different from those reported in Table 4.5). Complete results for all 26 predictors are provided in Table A.5. Results of the first regression (left side of table) both confirm and elaborate the correlational evidence we saw in Table 5.3. Thus, for example, it is now apparent that the relationships between rate of retirement and the occurrence of discussions with union officials, on the one hand, and with management, on the other, are net of one another—that is, persist even after taking into account the fact that some of the workers, especially some of those who elected to take early retirement, talked with both parties. Similarly, it is apparent that the correlations between rate of retirement and advice perceived in talks with management and union officials also tended to persist in that multivariate context. But our principal interest in this first set of regression coefficients is as a benchmark. If workers who engaged in discussions with management and/or union officials had been strongly self-selected in terms of factors that favored retirement, the coefficient for Discussed with Union and/or the coefficient for Discussed with Management should diminish in magnitude, perhaps to the point of insignificance, once those factors are added as predictors in the regression. In fact, as can be seen in the right half of Table 5.4, that did not happen. The two coefficients are virtually unchanged. By the same token, the coefficients for the 17 predictors from the basic model are mostly unaffected by the introduction of the "discussion and advice" variables (see Table A.5).i3 A different conclusion obtains for the six binary variables describing the auto workers' perceptions of advisory content in the discussions. Again, the left half of Table 5.4 provides a set of benchmarks. According to those results, several of the "advice heard" variables are significant predictors of retirement. Most notably, perceptions of encouragement from either union or management increased the likelihood of retirement—which is what one would expect if the advice heard by workers in fact made any difference in their decisions. But the better evidence, seen in the right half of the table, indicates that the perceived advice generally did not make any difference. The significant effects observed in the left half of the table do not persist once the basic-model variables are introduced.1^ Taken collectively, the evidence displayed in the right half of Table 5.4 poses a question. Why, if the mere fact of discussions discriminated the retirees (net of other factors), did the predominant content of those discussions have no net effect on the retirement decision? One possible answer is that workers whose characteristics tended to favor retirement (i.e., high pension wealth, difficulty in keeping up, etc.) were not only likelier to have engaged in discussions with union and management officials (as we saw in Table 5.1) but also were even more likely to have heard encouragement.

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rather than discouragement or neutrality, in those discussions. This explanation could rest on the assumption that cognitive-consistency bias produced the correlations apparent in Table 5.3. But the explanation could also be taken a step further, on the assumption that when a worker heard encouragement, for instance, he did hear an intended message. In other words, one could argue that both the UAW representatives and, perhaps more especially, GM's personnel representatives had simply tailored their messages of encouragement and discouragement with a keen eye to the individual worker's retirement-related characteristics (pension benefit level, health capability, whether located in a plant scheduled for shutdown, and so on). In either version, this explanation is consonant with the evidence seen in Table 5.4—although in its second version the explanation assumes that both union and management officials had been remarkably reticent about letting their mutual interests in an accelerated rate of retirements influence their advice. However, that explanation does not withstand closer scrutiny of the data. In either version, the explanation implies that the PDAV measure of pension wealth. Keep Up, and Plant Closed should be reasonably good predictors of the "advice heard" variables. In fact, they are not even weak predictors.15 Thus, with this additional evidence in mind, we are led to a different conclusion: the decision to retire "now" or to retire "later" were unaffected by the advice heard, net of other variables, simply because the workers generally ignored the advice when it ran contrary to inclinations they had formied on the basis of factors such as pension wealth, health, risks associated with a plant closure, and the like. If they had been inclined to retire because of those factors, they generally did so regardless of any perceived discouragement by imion or management officials (or by coworkers, for that matter). Conversely, if they had been inclined to defer retirement, they again generally did so regardless of any perception that union or management had encouraged them to retire during the contract period. These are descriptions of "the general tendency," of course. Undoubtedly there were exceptions—instances in which workers did heed the advice they heard even when it ran counter to their prediscussion inclinations. But by and large the workers listened mainly to their own individual evaluations of the options and arrived at their decisions accordingly, often in contradiction of what they thought their union and/or their employer preferred.i^ Does that conclusion mean that the discussions were of little or no use to the workers in their efforts to come to an informed decision about the timing of retirement? Not necessarily. In the first place, our measure of the contents of discussions is very weak. Second, whatever advice the workers heard (if any), the very process of discussion could have yielded other information (not captured in our data) and could have otherwise helped to

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clarify the individual worker's deliberations. It is possible, of course, that Discussed with Union and Discussed with Management are significant net predictors of retirement not because of the impact of discussions as such but because the two variables are strong correlates of unobserved factors which influenced the retirement decisions net of the basic-model variables. Obviously we are no better equipped to test the effects of "invisible variables" here than we were at a similar juncture in Chapter 4. It is also possible that workers were not likelier to retire because of the discussions but, instead, that they were likelier to have engaged in discussions because they had already decided to retire. Again, we noted before, this question of causal direction cannot be conclusively answered with the data at hand. But, to repeat an argument made earlier, for many of the auto workers the decisional process was surely not as simple as that stark "either-or" choice of alternative causal directions might suggest. It is undoubtedly true that workers who were favorably disposed to early retirement and whose projected pension-benefit levels translated into acceptable retirement incomes had little need to engage in a "learn first, then decide" strategy of decision making. They knew what they wanted to do, and their circumstances enabled them to do it; so they simply initiated the required paperwork, and that was that. Similarly, when projected benefits fell well short of an acceptable level, the decision was virtually dictated by circimistances; there was little to discuss with union or management. But the situations of many other workers were considerably more ambiguous, and it is entirely conceivable that these latter workers approached their UAW representatives or the company's personnel officers, or both, with some initial preferences or tentative decisions in mind, yet were uncertain as to the best course of action and sought more information, perhaps advice. In some cases, those preferences or decisions would have been confirmed; in other cases, disappointed. Either way, the discussions could have helped to form the worker's eventual decision, even when he ignored disappointing advice.

NOTES 1. This does not mean that such information cannot be reliably obtained, of course. But to do so requires the use of intensive interviewing techniques which, for a large sample study, are usually much too expensive relative to available resources. 2. The relevant literature is now quite extensive. For a range of treatments, see Tversky and Kahneman (1973), Granovetter (1974), Sherman and Corty (1984), Mintz and Schwartz (1985), Machina (1987), and Fiske (1993, pp. 175-178).

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3. We are not suggesting that the workers performed actuarial calculations and plotted their individual accrual profiles, only that they were sensitive to eligibility dates and prospective benefit amounts. As noted in Chapter 4, while workers in general are often ignorant even of basic features of their pension plans, we assume that information sensitivity increases at older ages and higher seniorities. Mitchell's (1988) study buttresses that assumption. 4. Rather than continually repeat the phrase "potential informant," we will often simply refer to persons of the three categories as "informants," without prejudicing the question whether they actually supplied relevant information. Perhaps "interlocutor" would be a more fitting choice, since it carries less implication that specific information was conveyed, but "interlocutor" has fallen into disfavor. 5. They were distinctive in one other respect as well: a disproportionately large number of them were African American. Whether this reflects a greater caution in responding to the interview question or, perhaps more likely, a greater degree of social isolation within the workplace we cannot say. In any case, the disproportion corresponds with the previously noted fact that, on average, the African American workers were less likely to take early retirement (see Table 4.5). 6. We tested this assumption by applying the Guttman scaling technique to the tree analysis in Figure 5.1. The resulting coefficient of reproducibility (.89) was just shy of the conventional benchmark (.90) for an acceptable scale. 7. The coefficients for PDAV were significant and positive (though quite small in size, —.003) in bivariate regressions of Discussed with Union and Discussed with Management. 8. With respect to that last conclusion, note that the African American workers were less likely to have engaged co-workers, but not imion or management officials, in discussions about the retirement decision—probably an effect of social isolation within the workplace. In addition, the measures of education and health tended to have similar net effects across the three categories of potential informants. We tested a number of other predictors (e.g., hourly wage rate, marital status, wife's employment status); none was significant, nor were the plausible interactions. 9. Half of the RERP retirees said that their decisions had been made prior to their eligibility dates, and half of these, more than 2 years prior. By contrast, twothirds of the SERP retirees said they had not reached their decisions until after their eligibility dates. 10. Put differently, advice from management was significantly less often perceived as encouraging than was advice from union officials or from co-workers (p<.001 by x^ test). Moreover, whereas the difference by seniority in the relative frequencies of encouraging and discouraging advice is significant in each of the top two panels of Table 5.1, it is not significant (at p =.05) in the bottom panel. As compared to workers with 30 or more years, workers with fewer than 30 years likelier heard discouragement rather liian "no position" from co-workers and from the union, but not from management. 11. Rates for the remaining patterns are (3) 24 percent, (5) 76 percent, (6) 39 percent, and (7) 34 percent.

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12. Because so few respondents are represented in pattern 5, we cannot be highly confident that the 76 percent rate is in fact greater than the 52 percent rate for pattern 1. However, as a group these retirees were somewhat distinctive in a number of concordant ways, by comparison to retirees whose informant choices fit pattern 1, as well as by comparison to all retirees. They tended more often to be production workers iJ7 percent, versus 70 percent in pattern 1) who were directly affected by a plant closure (33 versus 24 percent) and who retired via SERF (63 versus 51 percent) with fewer than 30 service years (35 versus 28 percent). Moreover, they had the highest mean pension wealth of the eight groups. 13. The only notable difference is a reduced magnitude of the point estimates for Keep Up in Table A.5, as compared to Table 4.5. The reduction suggests that workers who had experienced difficulty in keeping pace with their work were both more likely to have discussed retirement with union and/or management officials and more likely to retire. 14. The Barfield-Morgan data set includes comparable measures of workers' perceptions of encouragement/discouragement from co-workers, union representatives, and shop foreman (though not personnel representatives). Our analyses of those data yielded no evidence of net effects. 15. This conclusion is based on a probit selection model, in which the selection equation specified "Discussed with Union" (for example) as a function of the 12 variables used in Table 5.1 and the second-stage equation specified "Encouraged by Union" (for example) as a function of the same set of predictors (exceptting Easy Decision), plus the term for selection effect ("lambda"), for the selected subset of workers who had engaged in discussions with the given category of potential informants. 16. We replicated the "age at retirement" analysis reported in Chapter 4, but with the several "discussion" variables added to the selection equation and then to the second-stage equation. The results closely accorded with those reported in Table 4.4, with the addition that the net effects of Discussed with Union and Discussed with Management (but not Discussed with Co-Workers) were also significant and, as expected, negative in sign. Workers who had engaged in such discussions were both likelier to take early retirement and, when they did retire, likelier to retire at younger ages.

6 Solidarity and "Generational Equity^^ INDUSTRIAL RESTRUCTURING AND GENERATIONAL CONFLICT During the postwar period (as we recounted in Chapter 2), the UAW and the major automotive manufacturers negotiated a series of contracts which were instrumental in establishing what has sometimes been called 'Tordism/' an organizational technology designed to regulate "industrial relations." Principal features included a closed employment system with a well-defined internal labor market regulated by rigid job classifications, a strong seniority principle, and a labor-reserve system of layoff-and-recall cycles; pattern bargaining in negotiations of new or renewed contracts for labor; and, at least ideally, lifetime income security for wage-rate employees. Wage increases were linked to rising real rates of productivity. The concerted aim of employer and union was to stabilize the economy by strengthening a home market that could consume all of the domestic product, or all that could not be exported to other consimiers. Seniority determined movement up the job ladder as well as recall rights after layoffs, which were negotiated on a plant by plant basis. During downturns in the "business cycle," workers were "bumped" from higher to lower paying jobs and from plants that were closing to plants where there was a need for workers. By the late 1970s, Fordism, once appreciated as an important tool in stabilizing labor-management relations and minimizing costly events of labor strife, had become a liability for manufacturers. As foreign competition reduced the market share of U.S. automotive manufacturers, the surviving companies embarked on a campaign to reduce labor costs and expand the heterogeneity of work rules. Components production was "outsourced" to low-wage countries and to non-union suppliers. New plants were located in southern states, where hostility to trade unionism still held sway. In ex163

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isting plants in the traditional mainufacturing centers, management sought permanent reductions of the labor force, greater discretion in managing workers, and an increased use of overtime. At the beginning of the 1980s, under threats of more plant closings, the UAW agreed to wage concessions and to expansions of Quality of Work Life programs. The QWL programs transferred some power to work groups, eliminated the rigid job classification system that characterized Fordism, and undermined the authority of local union officials. As the industry returned to profitability in the mid1980s, workers regained few of the concessions. The continued use of overtime kept employment below previous levels, leading to a "workerless recovery." The UAW response was to attempt to curb these practices and to protect job security for remaining workers. The establishment of programs such as the Guaranteed Income Stream (GIS), the Secure Employment Level (SEL), extended Supplemental Unemployment Benefits (SUB), and a job bank QOBS) enhanced job security, at least temporarily, and protected the seniority system. The UAW also sought to negotiate economic penalties which would limit the firm's ability to increase hours among existing workers as a substitute for recalling laid-off workers, though these efforts proved to be mostly ineffectual. By the mid-1980s, then, auto workers had experienced significant losses. As plant closings and layoffs continued despite improved sales figures, conflict between labor and management was partly diffused into conflicts among different sets of workers over the rationing of jobs. Some of this conflict arose between workers who were active in the union and those who were inactive. When GM's Fisher Body Plant closed in December 1987, for example, some unemployed workers complained that "a lot of the active union guys were transferred over to the Buick local" (Keams 1990, p. 22). But much of the conflict took place between older workers, who had the advantages of seniority and access to pensions, and younger workers, who were at the head of the queue to permanent job loss. Because the distribution of jobs favored older workers, the contentious relations of exchange in job rationing opened to question the limits of the rule of seniority. For instance, should workers who were eligible for "30 and Out" or Special Early benefits be pressured to take them? Such issues, so easily formulable in terms of the prevailing individualist ideology of distributive justice, gnawed at the glue of an already weakened solidarity. The interworker tensions were most immediate, in both conditions and consequences, in the plants advertised for closure. But the advertisement signaled more broadly—"Tomorrow, it could be this plant, my job!"—thus stoking powerful emotions of job insecurity among junior workers even in plants not otherwise directly affected by a shutdown. As well, the age-cohort tensions sometimes intersected with conflicts in the politics of unemployment, economic development, and urban renewal at the local-commu-

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nity level, especially in cities where (as in Detroit, Flint, Kenosha, etc.) debates about a "rust-belt industrial past'' and imagined "high-tech, serviceeconomy futures" had already been joined (see, e.g., Dudley 1994; Graham 1995; Perrucci 1994). And of course the national arenas of public policy debate were at the same time being rapidly occupied by a new, "generational equity" rhetoric of distributive justice, which offered a broad context of legitimacy for an age-based politics of the workplace. Recent debates over "generational equity" have drawn attention to issues of the distribution of societal resources across generations (e.g., Marmor, Smeeding, and Greene 1994; Quadagno 1989). In one present-oriented scenario, today's elderly are accused of squandering the nation's limited resources and impoverishing children (e.g., Peterson 1993; Preston 1984). A related, future-oriented theme emphasizes the costs of paying for the retirement of the "baby boom" generation and the debt the elderly of today are leaving for their children and grandchildren (e.g., Kotlikoff 1992; Longman 1987; Peterson 1994; Peterson and Howe 1988). In the latter case, one solution for reducing the long-term costs of retirement is to encourage older people to work longer. To some degree, changes in public policy are already in place to encourage delayed retirement. As part of the compromise leading to the 1983 Social Security Amendments, the "normal" retirement age was increased for persons reaching age 65 after 2002, rising gradually to age 67 for persons becoming 67 after 2026. The early retirement age remains 62 but with a corresponding actuarial reduction in benefits to take account of the higher age for normal retirement. In addition, several proposals now under consideration would increase the retirement age still further. The dilemma, as Mitchell (1993) observed, is that while the state has raised the retirement age for public pensions, corporations have increasingly turned to early retirement as a means of shrinking their labor force. This latter practice creates a different form of generational conflict—not over resources generated by tax dollars but over the rationing of jobs. Nowhere has this conflict been more salient than in the auto industry. Young Bloods and Old-Timers As it became evident that employment in the industry would not return to the levels of the mid-1970s and that many laid-off workers would not be recalled, generational tensions increased in the plants and union halls. Union leaders were already well aware that rank-and-file solidarity had suffered erosion because of the rounds of concessionary bargaining, the "whiplash" pressures of local competing against local, and the substitutions of overtime for recall. Exacerbating those lines of cleavage by drawing out the "generational" conflicts of interest implicit in the rule of senior-

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ity was not a welcome prospect. Yet an obvious mechanism for alleviating some of the pressure of numbers in the internal labor market—an accelerated rate of retirements—could do just that. During the 1984 contract talks, negotiators on both sides of the table appreciated the mutual advantages to be gained from improvements to the existing pension plans, especially the early-retirement incentives. In reporting to the membership its goal of improved benefits, union leaders quite explicitly defined the point of it as an exchange across the seniority ladder: "higher pensions to encourage older workers to retire so that jobs are available for younger workers" {Solidarity, August 1984, p. 5). Job security among the younger generation was contingent on the willingness of the older generation to trade their job security for the (now enhanced) compensation they had been deferring to a later date. The traditional moral order of the seniority system was being updated, informally and within the bounds of a voluntarism, by the realities of a shrinking market and a partially orthogonal morality of job rationing. Indications of the generational tensions can be seen in the pages of Solidarity, As the union's official newspaper. Solidarity reflects basic policy positions of the UAW's national office. It does not necessarily represent the views of local union officers (which are often diverse) or those of the rankand-file (which are usually even more diverse). But letters to the editor offer a sampling of information about the understandings and sentiments of some of the more vocal members. While we cannot closely assess the sampling bias resulting from the self-selection of letter writers and from the editor's selection of letters to print, a survey of pertinent contents of letters published during the 1980s affords at least a glimpse of rank-and-file sentiments and definitions of issues. Some of the letter writers were retired workers voicing an altruism. George Connell wrote in 1981, for example, that his "early retirement helped Chrysler survive by giving younger workers a place and saving them from layoffs" (Solidarity, September 1981, p. 21). Roland Dunn wrote that he had "retired from GM with 30 years because in my mind it was the right thing to do in order to open work for the next generation" (Solidarity, March 1988, p. 5). A number of other retirees expressed the same general sentiment. But by the mid-1980s the more common testimony consisted of complaints from younger workers over the failure of too many eligible workers to join Connell, Dunn, and others under the banner of "Making Room for the Young." For example, Betty Rhoads protested that "my husband has been with GM for over 10 years and soon will be laid off again with no definite date for callback, if ever—unless some of the old-timers with 30-plus years retire" (Solidarity, April 1988, p. 5). Daniel Gray similarly complained, "I'm angry at all these pro-union workers with more than 30 years [who are] still working.... We appreciate you . . . for helping us to get almost all that we have now. Now we ask you to respect us and re-

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tire . . . or there may not be any plants for us 'young bloods' to retire from" (Solidarity, December 1989, p. 5). Charles Riggenbach suggested penalizing "each member a set amount, say $50 a month for every year they work past 30 years" {Solidarity, May 1989, p. 6). According to Mark Grubbs, if "every UAW member with 30 or more years" would retire, "not only could every laid-off worker be recalled but thousands could be hired off the streets." Grubbs couched his complaint within a broader "generational equity" thesis: "Is it fair for people with 30, 35, or even 40 years to still work while their children and grandchildren are left out in the cold? Is it fair that fewer and fewer of my generation can afford a home, that we have to pay higher Social Security taxes, and we probably won't ever see a dime of i t . . . ? Encouraging retirement should be the UAW's main priority" {Solidarity, February 1988, p. 6). Certainly there were many younger workers who did not agree that the troubles they faced were due to insensitivity or selfishness among their senior colleagues. Some wrote letters cautioning that interworker hostility was misdirected and counterproductive. Others expressed gratitude for the benefit programs created by their predecessors. James Cichoracki's defense of older workers illustrates both themes: "I want to respond to the letters urging old-timers to retire to make room for younger workers. There are times I feel the same way, but the old-timers have paid their dues and have fought for the benefits we enjoy. Without them who knows how little we might have today." Explaining that the tight job market was due in part to management practices, Cichoracki suggested that U.S. workers, young and old, were pawns in a larger game. "Big business moves jobs out of the U.S. to places where labor is cheap and can be exploited. This creates an abundance of factories in our country that enables management to pit one plant against another—asking, what will you give up to keep your job?" (Solidarity, March 1988, p. 6). John Sabol, asking readers to "count the foreign cars" they see all around them, also suggested that the problem of job scarcity should not be laid at the feet of senior workers, and then reminded his readers that workers retiring at age 62 had to take a 20 percent reduction in Social Security benefits {Solidarity, May 1988, p. 6). Nevertheless, it is clear that many other workers, losing their own jobs and seeing still others around them facing the same disheartening future, found an easy target for their frustrations and anger in the shape of "30year men" who showed no interest in retiring. Giving voice to those emotions in the pages of Solidarity was an extension of the frustration and anger, to be sure. But in at least some instances it was also an effort of moral persuasion, directed at senior workers; and in publishing the voices the newspaper was not only reporting "grassroots reactions," it was also aiding the effort. Sometimes the rule of seniority was explicitly attacked by junior workers, as in Mark Porterfield's letter. Protesting that "younger se-

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niority workers should not have anyone take their place because of 'corporate seniority/ " Porterfield articulated an individualist thesis that saw no meaningful difference between management and union in the operation of the seniority system (thus, "corporate seniority"). "I respect no one just because of seniority. They and I both work in the atmosphere where many senior workers think that the company owes them a living" (Solidarity, August 1988, p. 22). No doubt the reasoning illustrated in Porterfield's protest could have been stimulated wholly from within a worker's own internal resources, without any prodding from the effects of programmatic action undertaken by management, the union, or any other organizational actor. But the sentiments expressed by Porterfield are nonetheless consistent with a general observation. Solidarity is generated from within the resources of interaction among the workers and union and management officials. Because those resources were badly fragmented, practical understandings of "self-interest" were often disengaged from group identity, and actions designed to sustain solidarity could easily promote its erosion instead. A program of enhanced incentives designed to draw larger numbers of senior workers out of the internal labor market and into early retirement sought to unite younger and older workers in a redistribution of risk within (thereby protecting) the seniority system. To some extent the result was greater division. Younger workers sometimes saw the very existence of the program both as a statement of "official union policy"—that qualified senior workers ought to retire—and as evidence that many senior workers were capable of responding only in a "self-interested" way. Special Early Incentives It was in this context of declining employment, increased reliance on overtime, and rising tensions between young bloods and old-timers that a new Special Early Retirement "window" was opened to certain GM workers following the November 6,1986, announcement that nine plants (and parts of two others) would be closed by 1990, most of them by the end of 1987. The SERP offer would be made available in "each location where there are hourly employees on layoff . . . to be selected by local management from among those employees (a) who remain at work, including those in a JOBS bank, or (b) who are laid off and eligible for benefits under the Guaranteed Income Stream (GIS) program."^ There was no standard way of notifying workers about the option. Notification varied from postings on bulletin boards to discussions with benefit representatives, announcements on intercoms, and individual discussions. Responses to the offer varied from plant to plant and from worker to worker. But in general, it hardly needs saying, the experience was a stressful one for all workers affected by the closures, whatever their age or se-

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niority. Judging from evidence reported by Han\ilton et al. (1990, pp. 130-131), the stress was perhaps somewhat lower among very senior workers, who, on average, had higher incomes and the option of retirement.^ Because of that option, however, and especially the option of the Special Plan, there was one element of potential stress peculiar to senior workers— namely, the pressure of both real and imagined expectations levied by their younger colleagues. The efficacy of that pressure of expectations was a function of solidarity: the more a senior worker's sense of shared destiny was integrated across potential cleavages of generation or cohort, the greater his susceptibility to junior workers' expectations. But that integration was vulnerable, since the strength of the pressure of expectations could be seriously corrosive of the resources of solidarity. Certainly there was no mystery to anyone about junior workers' stake in the SERF offer: their jobs were "on the line," in both senses of that colloquialism. And given the inunediacy of circumstances of their vulnerability, it was easy for junior workers to interpret the risk of permanent job loss as a function of the seniority principle. Wittingly or not, use of the Special Plan as a means of shedding large numbers of unwanted production workers had a corrosive effect on allegiances to the rule of seniority in queuing and sorting behaviors. Not only did the Special Plan present an alternative scaling of the monetary value of a given year of service, with the result that in certain age-specific comparisons less senior workers accrued more wealth than did more senior workers.^ But in addition, the aim of the SERP window was often described and promoted in terms of shifting some of the risk of job loss from low-seniority to high-seniority workers—in other words, a redistribution against the traditional bias of the seniority principle. As stated in the pages of Solidarity (August 1984, p. 5), SERP's alternative scaling of the worth of seniority was designed to accelerate retirements "so that jobs are available for younger workers." The intended redistribution was still subject to seniority approval—in some sense of the word, a "voluntary" choice for each senior worker to make. And as several of the above-cited letters testify, many more senior workers than their yoimger colleagues had hoped found it easy enough to ignore the appeals to retire early "in order to make room." Indeed, management, too, saw many fewer SERP retirements than they had hoped to see. But these results do not mean that no social pressure had been levied against the senior workers' voluntarism of choice. For junior workers the temptation was to see an easy "win-win" solution to the problem of "excess" labor supply in the internal market: eligible senior workers would gain greater pension wealth by retiring now, under the Special Flan, and junior workers would get to keep their jobs. Our chief aim in this chapter is to assess the extent to which senior auto workers' attitudes on a number of specific issues involved in the "gen-

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erational equity" argument influenced their decisions to retire "now" or to wait until "later." We describe our respondents' positions on issues ranging from the mostly implicit claim that senior workers' decisions about early retirement were linked in a direct circuit of exchange to the distribution of permanent layoffs among other auto workers, to the very explicit claim that senior workers' ought to take early retirement in order to make room for their younger colleagues. Because our data are cross-sectional, we cannot measure relevant attitudinal changes, much less evaluate any attitudinal changes that might have occurred as effects of the increasing tensions over jobs and the persuasional efforts, explicit or implicit, of junior workers and perhaps other actors. Instead, we take the workers' attitudinal positions as stated during the interviews, with whatever traces of persuasional effort they contained, and assess first their distributions and mutual coherence, and then their impact on the workers' decisions to retire "now" or "later." With regard to that latter assessment, one should bear in mind that there is little reason to think that the senior workers' attitudes concerning the "equity" issues would have made very much of a difference in their retirement decisions. This expectation is recommended not by any peculiarity of the auto workers but by a general consideration of the behavioral significance of attitudes: a rather substantial body of research literature demonstrates that behavior is often insensitive to attitudinal or dispositional states.^ As a general conclusion about the determinants of behavioral phenomena, we recognize, that statement rubs against a very strong central tendency of actor orientation. People usually prefer to think of, and to explain, their own actions primarily as intentional responses to features of the situations in which their actions occur, and only secondarily (if at all) as effects of situations in which those actions take shape and proceed. But contrary to that egocentric "prime agent" bias, behaviors and behavioral effects very often contradict an actor's dispositions, attitudes, and verbal accountings of causes and consequences. ITie central tendency, in short, is to exaggerate the importance of dispositional or attitudinal factors, relative to situational or status factors, as determinants of behavior and behavioral effects—a point famously dubbed "the fundamental attribution error" in a recent literature (Nisbett and Ross 1980), though already well recognized by Max Weber, Karl Marx, and Adam Smith, among other earlier scholars. To be sure, behavior is variably sensitive to attitudinal states, and the degree of sensitivity does depend on the specific focal issues of an attitudinal position—^most obviously, of course, on the extent to which those issues are embedded in or directly serve as motivational factors. But it is unlikely that anyone seriously expected a senior worker to elect early retirement in the name of "generational equity" or "worker solidarity," if the present monetary value of the pension benefit to which that worker was entitled trans-

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lated into a low retirement wage. From our point of view, too, the question is not whether attitudinal effects of tense relations among cohorts of workers or between yoimger workers and management were primary determinants of the retirement decisions but, more realistically, whether senior workers' attitudes concerning the equity issues made any difference in the residual stickiness of senior workers—that is, in their tendency to defer retirement even when their assets in pension wealth were relatively high. As we saw in Chapters 4 and 5, variations in financial factors, even when combined with a large number of other predictors, account for only threefourths of the decisions in favor of retirement. That leaves a rather sizeable margin within which those hypothesized marginal effects of attitudinal variables could appear.

SENIOR WORKERS' ATTITUDES AH of the sample members were asked whether they agreed or disagreed that (1) "when jobs are being cut, older workers should retire so that younger workers can keep their jobs"; (2) "regardless of how old they are, workers should be allowed to keep their jobs as long as they can do the work"; (3) the respondent's own "retirement [prevented/would prevent] another auto worker from being laid off"; and (4) the respondent retired or, if still at GM, considered retiring in order to make room for younger workers.5 The first of the four statements (hereafter designated Help Young) asserts a direct linkage between senior workers' decisions and jimior workers' job security, and it invests that linkage with an obligation of senior workers, but the obligation is stated as a matter of general principle, without explicit reference to the respondent's own decision. The second statement (No Age Limit) raises the issue of voluntarism with respect to the timing of retirement and, by implication, with respect to "helping younger workers." Here, too, the reference is to a general principle: should the process of readjusting labor supply in the internal market be governed by command or by incentive? The third item (Saved Job) also focuses on the issue of a direct linkage, this time with explicit reference to consequences of the respondent's decision; but it does not specify the "other" in that linkage as necessarily a "younger worker." Finally, the fourth item (Make Room) repeats the linkage issue, specifically contrasts "older workers" to "younger workers," and explicitly refers to the respondent's own situation, his decision to retire or not, and whether a consideration of "younger workers" figured into that decision. The distributions of responses to the fovir items (i.e., the percentage of respondents agreeing with each statement) are reported in the top panel of Table 6.1.^ Note that the panel is organized by respondent's labor-force sta-

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Table 6.1. Response Distributions on the Attitudinal Items (Percent Agreeing) and Intercorrelations among the Items, by Retirement Status Retired Attitudinal items Help young No age limit Saved job Make room

RERP

SERF

Not retired

<> t

P<

50.1 75.0 62.7 63.1

53.4 73.7 57.3 52.6

39.9 77.4 42.0 39.6

.11 .04 .18 .20

.001 NS .001 .001

Interitem correlations (4>) by labor-force status (Retired, below diagonal; Not Retired, above) HY NAL SJ Help young No age limit Saved job Make room

—

-.16-

-.23* .18.29-

— -.11-.11-

.19-.09*

— .32-

MR .23* -.06 .25'

—

•p < .01 "^ < .05

tus. Although our intent at this juncture is mainly descriptive and does not yet include an assessment of the relationship between workers' decisions and their responses to these items, there would be little point to examining the response distributions independently of labor-force status, even initially. While it is true that behaviors are frequently insensitive to attitudinal positions on specific issues, the reverse is often not true. Attitudes often do change in the wake of sigiuficant behavioral events—especially events that imply a major shift in status, such as a shift from career employment to retirement. Thus, one would expect that retired auto workers evaluated specific issues differently from senior workers still in the plant, because of different circumstances and interests implied in the two labor-force statuses. Indeed, if there is anything especially remarkable about the correlations between status and each of the response distributions in the top panel of Table 6.1, it is not that they are significantly different from zero (at p<.001), with one exception, but that they are not of greater magnitude. Depending on labor-force status, proportions ranging from two-fifths to just over one-half of the respondents agreed that older workers should help younger workers, that their own retirements had spared or would spare the jobs of other workers, and that they had retired or had considered retiring in order to make room for younger workers specifically. A consistently larger proportion (three-fourths) agreed that older workers should be allowed to work as long as they want and are able to work, which suggests that in their view the use of early retirement as a means of adjusting

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labor supply should be voluntaristic and thus based on incentives, not imposed by command. These proportions can hardly be counted as evidence of widespread concessions in favor of junior workers—not if roughly half of the senior workers registered clear disagreement with Help Young and Make Room (and even more especially not, if, as is likely, the responses are biased in an affirmative direction if they are systematically biased at all)7 Moreover, the senior workers' responses often amounted to something less than accurate descriptions of the behavioral choices they had actually taken. Note, for example, that two-fifths of the respondents who were still employed in GM plants at the end of the contract period agreed with the general principle of Help Young, while a like proportion said that they had considered retiring in order to make room for their jimior colleagues; yet none of these senior workers actually did retire. Nor are the proportions obvious evidence that most of the senior workers were insufficiently appreciative of the plight of workers less privileged in the seniority queue. The clash of legitimate interests between oldtimer and newcomer had been traditionally regulated, in hard times as in good, by the rule of seniority. That remained true in this period of exceptionally hard times, even as management and uruon officials attempted to redistribute job exits across seniority ages. So it is reasonable to assume that the touchstone for every senior worker was the privilege that had been earned in playing by the rules. When measured as departures from that touchstone, the proportions shown in the top panel of Table 6.1 could be described as surprisingly large. Roughly two of every five of the workers who had not yet retired were willing to voice support for the notion that senior workers should voluntarily relinquish some of their privileged claim on available jobs. Granted, these two in five nonretired workers had themselves not done as much (at least not yet). But the point of the expectation was not that every senior worker need elect early retirement, only that some of them should do so. And as noted earlier, there is nothing novel in finding evidence that an attitudinal state fails to annoimce a corresponding behavioral choice. One must consider, too, the rather insensitive standard which the senior workers were being asked to endorse in an item such as Help Young or Make Room. In the case of Help Yoimg, the stimulus consisted in a blanket statement—that older workers ought to elect early retirement and thus absorb some of the risk of job loss among younger workers—^with no allowance either for the diversity of "older workers" (e.g., their financial circumstances, their psychological readiness for retirement) or, equally importantly, for the diversity of "younger workers" (e.g., the difference between those who had only recently joined the GM crew and those who had accumulated 15 or 20 years of service but were short of minimum-age eligibility for the Special plan). The stimulus for Make Room likewise ignored

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diversities of circumstance. Disagreement with either item would mean one thing if the respondent had assumed that the referent category included ''any younger worker" or "younger workers regardless of circumstance" and something rather different if the respondent had assumed that the point of the question referred mainly to co-workers who had invested a substantial chunk of their work lives in GM but then had niissed SERP's age-eligibility rule by a handful of years.^ Returning to Table 6.1, it may be noted that the response distributions shown in the top panel are remarkably uniform (expecting No Age Limit), both overall and within each of the two labor-force categories. This uniformity misleadingly suggests that the responses were highly correlated— that workers who agreed with Help Young, for example, usually agreed also with the other items. In fact, as can be seen in the bottom panel of the table, the interitem correlations, though almost always significant, are of modest size at best. This means that the senior workers held rather diverse composite views concerning the set of issues captured in the four interview questions.^ Every one of the 16 possible combinations of the four binarycoded items described the composite view of some nimiber of respondents. But the diversity was limited. Although no single combination of positions on the issues could be characterized as "typical" of the workers, 3 of the 16 composites account for nearly half of the sample of weighted cases, and 7 of the 16 account for nearly three-fourths (with none of the remaining 9 accounting for as many as 5 percent of the cases). These seven composites are (in descending order of popularity): • Subscribers to composite 1 (23.5 percent of the weighted cases) believed that older workers should not be expected to retire in order to help younger workers and that the timing of retirement should be volimtary (i.e., no mandatory age limit); their retirements did/would not save other auto workers' jobs, and they did not retire or had not considered retiring in order to make room for younger workers. • Subscribers to the next most popular composite view {composite 2; 11.5 percent) believed that older workers should retire in order to help younger workers, though it should be a volimtary decision; their retirements did/would save other workers' jobs, and they did retire or had considered retiring in order to make room for younger workers. • Composite 3 was probably as popular as the preceding one, accounting for 10.0 percent of the weighted cases. These senior workers said that older workers should not be expected to take early retirement in order to help younger workers, and in any case the decision should be voluntary; their retirements did/would save others' jobs, but they

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did not retire or had not considered retiring in order to make room for younger workers. Senior workers whose views fit composite 4 (7.8 percent) believed that older workers ought to retire early in order to help younger workers, though without the compulsion of a mandatory age limit; they did not believe their retirements did/would save the jobs of other auto workers, however, nor did they retire or consider retiring in order to make room for yoimger workers. Those who subscribed to composite 5 (7.5 percent) believed that older workers should not be expected to retire in order to help yoimger workers and there should not be an age limit; their retirements did/would not save others' jobs, but they did retire or had considered retiring in order to make room for younger workers. In the case of composite 6 (7.2 percent) the respondents disputed the general principle of older workers making way for younger workers and the general principle of mandatory age limits; on the other hand, they believed their retirements did/would save other auto workers' jobs, and they did retire or had considered retiring in order to make room specifically for their younger colleagues. Finally, composite 7 (5.1 percent): these senior workers endorsed the general principle of older workers making way for younger, and there should be an age ceiling to enforce cohort turnover; their retirements did/would spare the jobs of other auto workers, and they retired or had considered retiring in order to make room for younger workers specifically.

Each of the seven composites describes a coherent set of positions on the issues, even if the component views often did not reinforce one another. The first of the seven, characteristic of nearly a quarter of all respondents (weighted cases), describes the least sympathetic orientation toward younger workers. These senior workers not only rejected the idea that they, or senior workers in general, should trade their seniority rights for enhanced job security among their jimior colleagues; they also denied the suggestion that a direct connection could be made between their decisions and the security of anyone's job. Some portion of that denial might be interpreted as an effect of self-rationalizing assessments made by senior workers who, having continued to defer their own retirement dates, sought to avoid the thought that their actions had come at anyone's expense. As we saw in Table 6.1, the positive correlation between retirement and agreement with Saved Job was one of the largest of the four. But the correlation was of modest size, which suggests that other dynamics were involved. One possibility is that these senior workers were rejecting, both

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in attitude and in behavior, the underlying logic of claims that they were partly responsible for job losses among GM's younger workers. At the other extreme, the seventh of the composite views describes the most sympathetic orientation to younger colleagues. Apparently with few doubts that their departures did or would in fact translate into rescues of junior workers, these respondents believed not only that senior workers should give way for that reason but also that the privilege of seniority should be limited by a mandatory retirement age (although we do not know that an age limit younger than the once-traditional age 65 was intended). This seventh composite accounts for only 5 percent of the respondents; but if combined with the second composite—which differs only on the age-limit issue—one in every six of the respondents can be counted in the "most sympathetic" colimwi. Even at that, it is clear that the balance of sentiment among the senior workers was not systematically supportive of the "generational equity" claims put forth by some of their colleagues in the pages of Solidarity and elsewhere. The diversity of attitudes manifested by our respondents was in part a reflection of how well they were situated in material circumstances. There is nothing surprising in that, of course. A nimiber of studies of plant closures, both within and outside the automotive industry, have found that "capability conditions," most particularly conditions of financial capability, are the strongest predictors of affected workers' attitudes on equity issues connected with the closures (e.g., Aiken et al. 1968; Palen 1969; Perrucci et al. 1988). So, too, in the present study—despite the fact that we are dealing with a population of restricted age range, and more particularly with workers who were much less adversely affected by plant closures, on average, than were younger workers. Comparisons of pension-benefit levels, preretirement household incomes, and our measure of health capability across respondents organized by the seven composite views (and within labor-force categories) generally conform to expectations based on the results of previous studies, although the relationships tend to be weak. For example, among respondents who had not retired, the mean benefit level was higher for subscribers to the first and third composites ($972 and $948, respectively), lower for subscribers to the seventh ($604) and second ($828) composites. Similar differences obtain in comparisons of mean household income (in thousands of dollars: 47,48,40, and 44, respectively) and in comparisons of the proportion saying they had experienced no difficulty in keeping pace with work (95, 92, 74, and 75 percent, respectively). We tested these relationships by estimating several alternative specifications of a probit equation predicting respondents' positions on a given attitudinal item, both with and without a control for labor-force status. In general, respondents whose capability conditions signified higher status (e.g., higher pension wealth, higher household income, 12 or more years of

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schooling, no difficulty in keeping pace with work) less often expressed views in favor of the "generational equity" argument. ^^ That relationship is not peculiar to auto workers, of course, nor to blue-collar employees in industries suffering the pains of retrenchment and reorganization. Studies of the general adult population in the United States have documented a similar correlation between characteristics of socioeconomic status and subscription to various components of a dominant ideology of individualism—for example, "equal opportunity" among individuals (i.e., an asserted irrelevance of class, gender, etc.), "self-reliance," the fairness of existing positional inequalities, and the like (see, e.g., Kluegel and Smith 1986, pp. 64-65, 90-91, 132-134; see also Davis 1980; Kirchheimer 1966). The collective-solidarity claims of business unionism have not displaced that subscription; rather, they supplement it in specific disputes with management, primarily disputes about wage-rate schedules and work conditions. For most workers, a general principle such as the one expressed in Help Young is perceived and evaluated far more as part of a "redistributive ethic" (relative to the job-control rule of seniority) than as part of an ethic of worker solidarity; and principles perceived as "redistributional" (including principles involved in a "guaranteed jobs" policy; see Kluegel and Smith 1986, pp. 159-160) are less popular among persons who adhere to the individualist ideology, among persons of higher status, and especially among higher-status persons who adhere to the individualist ideology. However, the status effect was not all that strong among the senior auto workers, certainly not so strong as to have counteracted or submerged all other determinants of variation in the workers' attitudes toward the ''generational equity" issues. One might expect, for example, that those attitudes would have been sensitive to, and perhaps contingent upon, the workers' experience with plant closures. In other words, senior workers would have been likelier to have agreed with Help Yoimg, or at least with Saved Job and Make Room, when it was their plant that had been shut down and thus their junior colleagues whose futures with GM had been measured in weeks, not years. But in fact the data indicate otherwise (see Table 6.2). Among the respondents who were still with GM at the end of the contract period, having worked in a plant that closed made no significant difference in the pattern of their responses to the four items.i^ Among the retired respondents, on the other hand, there were some differences (composites 1,2, and 6), but the direction of difference is contrary to expectation. Moreover, the differences occur because of responses to Saved Job and Make Room, not to Help Young, and they pertain only to respondents who retired via SERF. If they had retired because of a plant closure, they were less likely to agree with Saved Job (43 percent) and with Make Room (36 percent) than if they had not retired because of a plant closure (64 and 61

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Table 6.2. Distribution of Principal Composite Views, by Labor-Force Status and by Experience with Plant Qosures Not retired

Retired Composite l(NYNN) 2(YYYY) 3(NYYN) 4(YYNN) 5(NYNY) 6(NYYY) 7(YNYY) Remainder Total

Closed

Not

Closed

Not

23.4 12.4 10.0 9.0 5.0 6.7 9.7 23.7 99.9

11.4 19.0 8.9 4.5 6.6 12.5 12.1 24.9 99.9

23.2 12.5 6.3 10.7 7.1 5.4 7.1 27.7 100.0

26.0 9.7 11.1 11 7,9 6.5 3.0 28.0 99.9

Note; For each composite the pattern of responses (Y - Yes; N = No) to the individual items—^Help Young, No Age Limit, Saved Job, and Make Room, respectively—^is given in parentheses.

percent, respectively). These correlations, although small in size (
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anonymous Younger Worker "pulling time" for GM elsewhere. As Halle (1984, p. 171) observed in a related context, "for many blue-collar workers the workplace remains an arena that generates solidarity and cooperation," but the networks of mutual support which were "once a classic feature of working-class communities" now seldom reach beyond the shop floor and into the workers' residential settings, much less to the settings of other plants in other places. TRANSLATING ATTITUDES INTO BEHAVIOR

If gauged solely in terms of the ultimate goal of shedding large numbers of senior production workers, efforts to persuade senior workers to take early retirement for the sake of their junior colleagues were anything but a rousing success. That much we know from assessments acknowledged by management and union officials alike. However, there is still the intermediate question of whether senior workers' attitudes were mobilized in a direction that favored early retirement. The fact that actual outflows were never as great as the hopes entertained by SERP's promoters does not mean there were no discernible signs of success in the effort to win behavioral allegience to the "generational equity" thesis. Indeed, we have seen evidence in previous chapters that could be construed as grounds for a limited optimism. Recall, for example, that about half of the auto workers who elected early retirement during the 1987-89 contract period did so through SERF, and about half of the SERF retirees left after their 30th year of service. The fact that 90 percent of these latter SERF retirees departed GM more than 2 years after they had passed up the "30 and out" option of the Regular Plan could be taken as evidence that as many as one of every five of the retired workers probably would have delayed retirement even longer, had it not been for the opportunity of, and the attendant pressures implied by, the Special Plan. It is certainly conceivable that persuasional efforts by junior workers made a significant difference in the decisions of these SERP retirees, if not more generally. The analyses summarized in Table 6.3 do not lend much support to that hypothesis, however. These results are of two separate regressions of labor-force status (defined, as before, in terms of three end-states: Y^ = 1 if Not Retired; Y^ = 1 if Retired via RERP; Y^ = 1 if Retired via SERP). In one of the regressions (left half of table) only Help Young, No Age Limit, Saved Job, and Make Room were used as predictors; in the other regression (right half of table) these four attitudinal items were added to the 17 variables of the basic model, plus Discussed with Union and Discussed with Management. Complete results for all 23 predictors in this second regression are recorded in Table A.6.

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The multinomial logit coefficients from the first regression tend to support the correlational evidence displayed in Table 6.1, although the pattern of net effects is consistent between retirement avenues only for Saved Job and Make Room. While the coefficient for Help Young is significant and positive for departures via the Special Plan, and nonsignificant for departures via the Regular Plan, the null hypothesis concerning the difference between those coefficients (i.e., RERP vs. SERP) cannot be rejected. However, the question of main interest is whether the effects of the attitudinal variables are simply due to variations in financial and other characteristics of the auto workers (i.e., the right half of Table 6.3). The results are somewhat mixed. On the one hand, both Saved Job and Make Room predict retirements via RERP, but not retirements via SERP, net of other factors; yet once again the hypothesis of no difference between the point estimates cannot be rejected for either variables. On the other hand, the coefficients for Help Yoimg (as well as for No Age Limit) are consistently nonsignificant.i2 We tested a number of plausible interactions, including several pertinent to the conjecture that the effects of any or all of the attitudinal variables were sensitive to Plant Closed, to Overtime, to skill level, or to pension wealth. None was significant. We also re-estimated the regression as represented in the right half of Table 6.3, but with eight dummy variables— one for each of the seven composite views described earlier, plus an eighth for the remaining quarter of cases—in place of the four separate attitudinal items. The results were consistent with those shown in Table 6.3. Relative to the workers who subscribed to the second most popular of the composite views (assigned as reference category), those who subscribed to the first, fourth, and eighth composite views were significantly less likely to retire, while those who subscribed to the seventh composite view were significantly more likely to retire. But when the four attitudinal variables were then added to the regression as main-effect terms, coefficients for all the "composite view" dummy variables, now capturing only the multiple interactions among the variables, reduced to insignificance. Likewise, all first-order interactions among the four attitudinal variables were insignificant. In sum, the results fail to give much support to the argument that workers' views concerning generational equity affected their retirement decisions. There is limited evidence, it is true, that workers who agreed with Saved Job and/or with Make Room elected early retirement more often, net of other factors, than did workers who disagreed with those statements. But that evidence is not internally consistent, as we noted above. Moreover, it is potentially compromised by the ex post nature of the data; the apparent effects could simply reflect retirees' rationalized accounts of their decisions to retire, rather than genuine ex ante motivations. (Bear in

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mind, in that regard, that agreement with Saved Job would have been the easiest, and least interesting, of the stories that retirees could have told: "By retiring early, I saved somebody's job.") In any case, if in fact some of the senior workers did more often take early retirement, and did so at yoimger ages, because they had believed (ex ante) that by retiring early they would "make room for a younger worker," the sentiment did not consistently translate into an endorsement of the general principle of Help Yoimg. No doubt some of these workers had shied away from generalizing their own motives into a categorical obligation of all senior workers. But the point is, whether they did or did not believe that their decisions were the right model for all, agreement with Help Young simply had no effect on those decisions, net of the effects of material circumstances of self-interest (and regardless whether the other attitudinal variables are controlled or not). Attitudinal inconsistency is certainly not in itself a sufficient groimd for concluding that the observed coefficients for Saved Job and Make Room are significant only because of cognitive-consistency bias. But we think that on balance the evidence weighs against even a modest net effect of the workers' views regarding the central issue of generational equity. The evidence consistently demonstrates that none of the four items discriminated retirements under the Special Plan, yet efforts to induce early exits for the sake of junior workers tended to be focused more on potential SERF retirees than on potential RERP retirees. The latter retirements, bear in mind, almost always occurred under "30 and out" and, therefore, because of financial, health, and related concerns. Granted, many workers who were qualified for "30 and out" did not retire; so it is possible that Saved Job and Make Room indexed genuine motivations which discriminated retirements in that margin. Nevertheless, agreement with either of those attitudinal statements should have been easier for RERP retirees, in the sense of an ex post accounting of reasons, because of financial and related circumstances. A better test of the potential contribution of the attitudinal variables to the retirement decision would focus specifically on those workers who retired even though they were least likely to have done so in terms of their material circumstances (i.e., pension wealth, wage rate, household income, health capability, and so forth). Perhaps these workers did retire because (at least in part) they were likelier to have agreed with the "generational equity" claim. To test this hypothesis, we partitioned the retired auto workers according to the degree of their unlikeliness as retirees, where "unlikeliness" was defined in terms of the 17 predictors from the basic model, plus Discussed with Union and Discussed with Management. This partitioning was accomplished in the following manner. First, we estimated a probit regression of labor-force status (Y = 1, if Retired) on those 19 predictors. Next, we calculated the distribution of values of the inverse Mills ratio, which measures the i/nlikelihood that any given respondent was a retiree (as as-

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sessed in terms of the 19 predictors). Finally, we defined the "least likely retirees" as those retirees whose unlikelihood values were more than 1 standard deviation greater than the mean value for all the retired workers. These "least likely retirees," who comprised 14 percent of all the retired workers, may be regarded as atypical retirees relative to predictions by the set of 19 measured variables used to predict actual retirements (see Figure 6.1). The atypical retirees were positively but weakly characterized by those measured variables.^^ In addition, they were positively and relatively strongly characterized by one or more unmeasured variables—that is, by factors neither included in nor well correlated with the 19 measured variables. These unobserved factors, if we could identify them, would presumably account for the fact that the atypical retirees had decided to retire despite being rather weakly characterized by the measured predictors of retirement. Our working hypothesis is that the unobserved factors (unobserved in the predictive model, that is) include or are well correlated with responses to one or more of the attitudinal statements. We expect, in other words, that the atypical retirees agreed sigruficantly more often than did the other retirees with Help Young, Saved Job, and Make Room, though probably not with No Age Limit. The data are contrary to that expectation. The comparative proportions of atypical retirees, versus all other retirees, agreeing with the four items are: Help Young, 38 versus 54 percent; No Age Limit, 77 versus 75 percent; Saved Job, 49 versus 62 percent; and Make Room, 49 versus 60

n 1 \ r 1 \ ] r 0 +.15 +.40 +.75 +1.5 +2.5 +3.5 +4.5 +5.5 Inverse Mills Ratio (lambda)

Figure 6.1. Distribution of Inverse Mills Ratio Values.

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percent. Excepting the second comparison, these differences are significant (at p<.01); but in each instance the direction of difference is opposite to expectation. That is, the atypical retirees were less likely, not more likely, to have reported that their retirements saved other auto workers' jobs, that they retired in order to spare the jobs of their junior co-workers, and that they agreed with the principle that "when jobs are being cut, older workers should retire so that younger workers can keep their jobs." In light of these results, we are even more doubtful that the two significant coefficients for Saved Job and Make Room shown in Table 6.3 manifest ex ante motivations, rather than effects of cognitive-consistency bias. WHY NO DIFFERENCE? Because we do not have "before and after" measures of the respondents' views on the equity issues, we cannot evaluate the extent to which persuasional efforts were in fact successful in changing the attitudes of senior workers. What we can conclude with some confidence, however, is that even if those efforts were successful in changing attitudes, they made no difference in the workers' retirement decisions. Of course, as we cautioned earlier in this chapter, the standard against which to judge results of the analyses should be of proper proportion: a conclusion of "no difference" here stands in contrast to a mole hill, not to a mountain. But even so, the union tradition of worker solidarity in face of adversity constitutes reason for at least mild surprise that senior workers' attitudes regarding the central issues of generational equity had no net effect on their decisions (or, in some cases, actually had an effect that solidarists would consider perverse). With that tradition in mind, it is worth examining a conclusion of "no difference" in broader context. Why no difference? A short answer turns on the relative importance in determinants of early retirement: even when the workers did hold views in sympathy with the equity claim, those views were either not strongly enough held or not weighed as sufficiently important to counteract workers' perceptions of individual self-interest in terms of financial and related circumstances. That is almost certainly true; the evidence is consistent with it. But that answer is too short, for the simple reason that all of the measured "self-interest" factors collectively account for much less than all of the variation in the retirement decisions. Even among workers who were relatively well situated in terms of pension wealth and other characteristics generally associated with the decision to retire early, effects attributable to a "generational equity" sentiment were negligible at best, probably nonexistent. However successful the persuasional efforts to alter the senior work-

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ers' attitudes might have been, those efforts apparently did not translate into a distinctive pattern of early-retirement decisions. That the workers would not have been favorably moved by management's stake is hardly surprising, given the managerial "style" which Maryann Keller, a well-known financial analyst and longtime observer of the automotive industry, described as "contemptuous paternalism." GM workers were imdoubtedly aware, for instance, that whereas GM's profitsharing payments to its 450,000 wage-rate workers in 1988 amounted to only $254 each. Ford paid its workers 10 times as much—even though, as Keller (1989, pp. 30,244) pointed out, "Ford's net income was nearly identical" to GM's, and "the formula by which profit sharing is calculated is the same." (Remember, too, that GM's chairman, Roger Smith, was awarded a 1988 bonus of $3.7 million.) The payments rankled not only because they were anemic. Profit sharing had been understood as a substitute for a previously included component of the annual wage-rate increase—the "annual improvement factor" (AIF), traditionally 3 percent—^which the UAW had relinquished in the 1984 contract settlement; yet the 1988 payments were the first by GM since 1985 (Katz 1985, pp. 175-176; Katz and MacDuffie 1994, p. 203). So to the degree that management's interest in SERF retirements during the 1987-88 window extended beyond the sheer volume of exits and included a concern to substitute younger for older production workers, it probably garnered very little sympathy even from those senior workers who accepted the SERF offer. But if there is little reason to expect that auto workers would have been swayed by management's interests in the potential effect of a "generational equity" argument on the average age and wage bill of the remaining labor force, it is perhaps more surprising that they were apparently equally deaf to their union's interests in preserving jobs for its younger members—who were, after all, vital to the imion's future. Some features of the historical context of labor-management relations in the auto industry during the 1980s provide a useful perspective on that "equity in deafness." Recall that the National Labor Relations Act of 1935, despite all its weaknesses and failures (especially with respect to enforcement mechanisms), did succeed in establishing legal recognition of two key points: first, that there is a genuine conflict of interests between buyers and sellers of labor-power; second, that this conflict is a basic structural conflict, not simply a matter of personalities or of fluctuations between good economic times and bad. The ensuing sequence of accommodations between unionized labor and corporate management—accorrunodations which accelerated in increasingly altered form after the Taft-Hartley legislation of 1947 (Edsforth 1987, pp. 200-219; Klare 1978)—gradually blurred that line of structural conflict. By the late 1970s, new models of workplace governance, emphasizing "em-

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ployee involvement" (Quality of Working Life programs), were eroding the line even more, in favor of a corporate, quasifamialist cooperativism. The UAW was one of the few unions to engage management in trying those new governance schemes on a large scale. While UAW's rank-and-file members had never been uniformly happy with their leadership's accommodative stance, many of them grew distinctly less content as the industry proceeded in its "restructuring" efforts. At the same time, union leadership was feeling steadily more vulnerable because of declining membership and declining production (between 1979 and 1982, remember, employment in the automotive industry declined 30 percent in the United States, as vehicle production declined 40 percent). Both declines were exacerbated by the severe recession that began in 1981 and by the resurgence of a nativist-populist electoral politics which successfully traded on and fueled hostilities toward imionism. When the automotive companies demanded major concessions as vital to the effort to manage reductions of labor-force population and wage costs, the UAW's national leadership continued to respond in a conciliatory manner. The leadership's response to GM's announcement in late 1981 that management expected substantial concessions exemplifies the point: after a brief period of consultations, and in face of strong objections voiced by a group of local leaders, the UAW president, with the apparent support of all members of the executive board, recommended rank-and-file approval. Just over half of the workers voted in favor of the proposal. One result of that vote was a concessionary package totaling $3 billion. Another was increased disaffection among the workers; the 48 percent who had voted against the proposal grew more vociferous in their opinion that the union leadership had simply capitulated (Slaughter 1982; Yates 1993, p. 207). Because of the national leadership's conciliatory stance, many workers began joining oppositional caucuses. In broader historical perspective, of course, oppositional caucuses were nothing new. Spurred by various and changing sources of contention, they had continued to pop up here and there even after the national (or "international") leadership succeeded in consolidating its power relative to the locals, a process that was begun in the 1942 GM-UAW contract and culminated in the mid-1950s (see Edsforth 1987; Stieber 1962; Zetka 1995). That consolidation, combined with the increasing geographical dispersion of locals and generally favorable economic conditions, had made the organization of effective local oppositions more and more difficult. During the mid-1970s, however, the national leadership's authority came under severe challenge, as indexed by the large number of wildcat actions among rank-and-file workers (at least two dozen in 1974 alone), followed by animosity toward the national leadership's complicity with management in suppressing the actions. Conflicts of interest between the UAW's central policy positions and particular union

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locals increased during the late 1970s and early 1980s, sometimes to the point of formal litigation (Clark 1989, pp. 48-61,69-87; Katz and MacDuffie 1994, pp. 210-212; Rothstein 1986). But the formation of oppositional caucuses also manifested substantial disagreement among ramk-and-file members toward their national leadership. As Yates (1993, p. 205) observed, rank-and-file solidarity was already weakened by divisive effects of the concessionary negotiations, especially by the fact that "concessions were negotiated largely on an ad hoc basis," not simply company by company but even plant by plant within a company, setting worker against worker at the local level (see also Clark 1989, pp. 68-70; Katz 1985, pp. 189-190; Weiler 1990, p. 44). Rank-and-file attitudes toward their leadership soured still further as it became evident that the Canadian "region" of the UAW (which had separate national leadership within the international union) had been succeeding at its leadership's decision to resist management demands for worker concessions. Indeed, in 1985 base wage rates for production workers began to diverge between the Canadian and U.S. "regions" of the international union, after many years of uniformity. By 1989 the Canadian advantage was more than $2.00 an hour (see Yates 1993, pp. 220-228).i4 With that context in mind, one can well imagine that if senior workers were little inclined to credit management's interest in commitments to a "generational equity" principle, many of them were also at the very least skeptical of their union's stake in the issue. But their suspicions and reservations were directed more toward the union's national leadership than toward shop stewards, conunittee members, and other officers of the union locals. As Halle (1984, pp. 175, 230-241) recounts in his study of chemical workers, blue-collar distrust of the politics of organization on a national scale, though certainly not a new phenomenon of the industrial workplace (see, e.g., Chinoy 1955; Sayles and Strauss 1953), has been increasingly prominent in recent decades. Typically focused in perceptions of a national leadership as remote, collusive, and quick to betray "the working men and women of this country," the distrust easily generalizes across different organizations, equating "government bosses," "corporate bosses," and "union bosses" as so many peas of the same pod. Local union leadership, while not immune, tends to be viewed within a more favorable framework simply because it is local—^which is to say, better integrated in the daily activities and experiences of the shop floor workers and better in time with the circumstances of the local community. Moreover, officers of some of the union locals had serious reservations about the national leadership's stance on certain issues. One very prominent instance of vocal opposition from officials of several UAW locals in 1981 was cited just above. Another, more systematic indication of the divided sentiments of local officers can be seen in the results of a study con-

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ducted by Kochan, Katz, and Mower (1984; see also Katz 1985, p p . 85-88). A sample of 110 local officials in five plants in which QWL programs had been imderway for at least 6 months were asked to evaluate various effects of those programs. While a majority of the officers agreed that the union should continue to support and actively participate in running the programs with management, about one-fifth of the officers believed that the programs would interfere with grievance procedures, undermine the union's ability to enforce contract provisions, and in general weaken the union's influence in the plant. Still more pointedly, nearly 60 percent of the local officers, many of whom were themselves plant representatives, felt that the role of the representative had suffered because of the union's involvement with management in QWL programs. This collateral evidence reinforces the conjecture that senior workers seldom perceived much enthusiasm among local officers for the national leadership's participation in promotions of early retirement on grounds of equity and solidarity. Union representatives, obligated to represent the interests of all members of a local, no doubt understood the aim of the "generational equity" claim and might have been sympathetic in principle. But they also understood that the claim plied a range of sentiments associated with a conflict of interests between junior and senior workers—and that they, the union representatives, were caught somewhere in the middle. The easiest way for the local officers to have managed that conflict would have been to emphasize the traditional rule of seniority—that is, volimtary actions guided by the material incentives of the early retirement plans—leaving the persuasional efforts to the national office, junior members of the rank-and-file, and vehicles such as Solidarity.

NOTES 1. Another SERF window was announced August 4, 1989, for the interval from August 1989 through March 1990. This memorandum of announcement (from Stephen Yokich, Vice President and Director of UAW's General Motors Department, addressed to all UAW-GM Presidents, Chairpersons and Benefits Plans Representatives) again stipulated that "local management will determine those employees to be eligible for such retirement" (as well as for a parallel Voluntary Termination of Employment Program (VTEP), designed for workers who didn't meet SERP's minimum seniority criterion), based on "current and future manpower and skill needs," and that the total number of such retirements (and VTEP exits) at a given location "may not exceed the total of those employees (1) in the JOBS Bank at that location and (2) eligible for the Guaranteed Income Stream on layoff." The set of guidelines governing the window—developed jointly by the UAW's national office and GM's office on Corporate Employee Benefits, Employment Relations, and Labor Relations Activities—made quite

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clear that the early-exit "program is designed to increase (1) local operating efficiency and (2) potential employment opportunities for laid-off employees. However, there is no requirement to call back anyone as a result of these separations, except as may be needed to efficiently run each local operation." 2. Hamilton et al. (1990) examined frequencies of somatic, depressive, and anxiety symptoms among GM workers at four of the closing plants, with comparison data for GM workers at 12 plants that were not scheduled for closure. Net of the income effects, age, and seniority had little or no effect on the measures of stress. 3. As the accounting in Chapter 3 demonstrated, at certain ages a 27th year of service (for example) could be worth much more under the terms of SERF than under the terms of RERP (see Table 3.5). Even if the workers were imable to calculate their individual accrual profiles and the comparative profiles of other workers (and they almost surely were), the general difference in accrual schedules between plans was not opaque. 4. McGuire (1989, p. 55) concluded from a survey of the empirical literature that "the attitude-action covariance seldom [exceeds] 10 percent," and that when "more sizeable correlations are reported, it is typically between the attitude and the behavioral intention rather than the behavior itself." For other evaluations, see Ajzen and Fishbein (1980), Sherman and Fazio (1983), Plott (1987), Fazio (1990), and Smith (1991). 5. The wording of this fourth question differed between retired and nonretired sample members. Each retired worker was asked to indicate for each of a series of statements whether that statement did or did not describe a reason he had retired; one of the statements, read: "You wanted to make room for younger workers." Each nonretired sample member was asked: "In the last few years, have you considered retiring to make room for younger workers?" Note that the order of the four questions in the interview schedule was the reverse of the order enumerated above. Also, the four questions were interspersed with other questions (concerning reasons to retire, features of the pension plans, etc.), which should have lessened response-set bias. 6. Given the cross-sectional nature of our data, we can only assume that the responses to the items were indicative of reasonably stable attitudinal positions. The assumption is a rather large one, however, and it may not be uniformly warranted across the respondents. Converse argued many years ago that crosssectional distributions of attitudinal or opinion responses tend to manifest three distinct components: a core component consisting of responses by people who have reasonably stable positions on specific issues; a usually smaller component consisting of responses by people who have had well-formed positions which are changing at the time of interviewing; and a third component consisting of responses by people who lack a stable position on a given issue but who respond nonetheless as if they did have (see, e.g.. Converse 1964 and 1974). Subsequent research designed to test Converse's thesis has shown mixed results, although the tests have not always been appropriate. For a review of the thesis and some of the ensuing debate, as well as an appropriate latent class analysis of data which generally supports the thesis, see Taylor (1983; also see Zaller 1992).

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7. That is, the responses are probably mixtures of genuinely held views on the issues and socially acceptable answers to some potentially discomforting questions posed by the interviewers. An element of social-desirability bias can doubtless be expected in replies to a "general principle" question such as Help Young; likewise, in replies to statements that query a person's motivation (as in Make Room) or that draw attention to consequences of a person's decision (as in Saved Job). 8. We lack the means of controlling those variations in the semantic spaces within which our respondents settled on a specific interpretation of the item stimulus. 9. It is clear from the conceptual contents of the questions that they address different (though interrelated) issues and do not comprise a unidimensional scale. Thus, relative to normal terminological convention we are being somewhat lax in referring to the items as "attitudinal," since an "attitude" is indicable by multiple (preferably scalable) questions, not by a single question as we have done. 10. There is little point to presenting all of the regression results for the four attitudinal items. An exemplary set of results for Help Young—the most broadly pertinent of the items—is as follows: PDAV, -.004 (.0005); Household Income, -.008 (.002); Married, -.316 (.098); Keep Up, -.252 (.098); and Retired, .447 (.090). The equation correctly predicted 48 percent of the weighted cases of agreement (the nonmodal end-state) with Help Young. Other variables examined include wage rate, skill level, ethnicity, and wife's employment status; none was significant. 11. Bear in mind that the nonretired respondents who had worked in a plant that closed were a selective group, not only because they had postponed retirement but even more because they had been able to transfer from the closing plant. 12. Of the four attitudinal variables only Make Room predicts retirement age. Estimations of this selection model are reported in Table A.7. Note that the results shown in the first column of that table are for the selection equation (i.e., Y = 1, if Retired), and that the coefficients for Saved Job and Make Room are significant, though only in a one-tailed test for Make Room. This augments the evidence of net effects of RERP retirements in Table 6.3. Note, too, that the interaction tests referred to below were also performed with the second-stage equation predicting Age at Retirement; none was significant. 13. By comparison to all other retirees (i.e., the typical retirees), they had a significantly lower mean level of pension wealth, had less often worked overtime prior to retirement (which suggests they had less often been anticipating retirement), were more often 62, 63, or 64 years old, and more often departed under the Regular Plan. 14. In 1985 the Canadian UAW formally withdrew from the international union and became the independent Canadian Autoworkers Union. The final stimulus to this split was an e^ort by the U.S. leadership (i.e., the "international" leadership) to force the Canadian "region" of the UAW to follow the U.S. negotiating stance (see Yates 1993; and for relevant context. Card and Freeman 1994, pp. 208-211).

7 Aspects of Postretirement Satisfaction

SATISFACTION, AGENCY, AND AUTOBIOGRAPHICAL MEMORY Satisfaction with one's circumstances of life after leaving the labor force is, at least in general outline, much like one's satisfaction while still in the labor force. A great deal depends on the material conditions and status characteristics that define capacities, constraints, elasticities, horizons of opportunity and expectation, and various other features of one's circumstances. Certainly it is to be expected that satisfaction with being "retired" will vary more or less as the material conditions and associated characteristics of that heterogeneous status called "retired" vary. Thus, persons who have "adequate" incomes, who are in "good" health, who reside in a "suitable" environment, who have access to an "adequate" network of social support, and so forth, are more likely to be "satisfied" with life after retirement, on average, than are those persons who have contrary characteristics (see, e.g.. Beck 1982; Mutran and Reitzes 1981; Reitzes, Mutran, and Pope 1991; Seccombe and Lee 1986). But it should also be evident that the various factors of material condition—income, health, environment, and so on—are as inherently relative as the currencies of "adequacy," "suitability," and the like, through which those factors are evaluated toward some verdict of "satisfaction." That being the case, the question of "satisfaction" and its conditions always depends on another question: "Relative to what?" Or as Sen (1987, p. 45) put it, an "over-exhausted coolie" may "take pleasures in small mercies." The point is not merely a methodological complication of observation and measurement. It is a statement about the process by which actors arrive at more or less deliberated evaluations of their life circumstances. Evaluation assumes some sort of reference standard and context. Insofar as the 191

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proverbial "ordinary actor" is a comparative analyst—and virtually all are—the selected reference is typically not drawn from a random sampling or an averaging of all relevant comparative conditions. Rather, the standard tends to be local (though this need not be locality in the physical-geographic sense), and it tends to be autobiographical. This latter tendency implies, in the case of "retirement satisfaction," that the experiential process of the transition and of life circumstances before the transition commenced should have something to do with evaluations made of posttransition circumstances. The possibilities in which every confessedly revisionist historian delights have their counterpart in the autobiographical revisions that transpire as an evaluation of "how well I am doing now." In other words, the process of evaluating present satisfaction is informed by, because it is part of, the remembered experience of the process that led to present circumstances. One's "present circumstances" include that experience—not merely as preamble or addendum but as fabric integral to the texture of the whole. It is partly in this manner that perceptions of procedural equity, fairness, or just desserts with respect to the autobiographical process are built into one's present circumstances as such and not only into one's ex post evaluation of them. Studies of the retirement transition during the 1950s sometimes acknowledged that implication, at least indirectly, when they related posttransition dissatisfaction to the fact of an mvoluntary retirement (e.g., Stecker 1955). Mandatory retirement had become an increasingly common policy in large manufacturing firms (especially in high-wage manufacturing), as well as in sectors such as public administration, transportation, and public utilities (see Barker and Clark 1980; Reno 1971). Under most circumstances, workers knew well in advance if they were governed by a mandatory retirement age; it was an anticipatable, plannable event. Even so, and despite the effects of other factors such as the dollar value of postretirement income, the fact that a departure was mandated at a certain date entailed a greater likelihood of dissatisfaction with life circumstances after the transition. Not surprisingly, having a favorable attitude toward and reasonable expectations of life in retirement before making the transition was integral to the experience of the retirement event and its aftermath (see Thompson 1958). The constraint of a mandated age, though it in one sense rendered the event of labor-force withdrawal eminently plannable, tended to deprive older workers of the cathectics of personal agency when anticipating and/or planning their own individualized futures. As Friedmann and Havighurst (1954, 143-144) observed from their study of retirements, many workers were sensitive to the difference between retirement "as something which had been done to them" and retirement as a "voluntary" or self-initiated transition, and workers who fit within this latter group— that is, who regarded themselves as "having retired" rather than as "hav-

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ing been retired"—evaluated their postretirement circumstances more favorably, especially if the "extraeconomic meanings of work" had been an important feature of their employments. With the removal of mandated retirement-age constraints, both through the substitution of monetary incentives at earlier ages and then through legislative revisions of public policy, the proportion of retirements that could be counted as voluntary greatly increased (see Levine 1988; Reno and Grad 1985; Schulz 1991). As inducements such as relaxed eligibility rules, enhanced benefit rates, and reduced actuarial adjustments to benefit streams activated at early ages grew in magnitude and spread in coverage of the older-adult population, the sources of satisfaction with "life as a retired person" appeared more and more to derive only from the immediate conditions of retirement as an end-state status. Employer-provided pension schemes were especially distinctive in allowing senior workers much greater latitude in the choice of retirement ages, thus recognizing that the retirement decision is for most workers primarily an instance of that large class of decisional problems known as "timing problems" (as described in Chapter 5). At any given age within an increasingly wide range of ages, workers could choose to accept the incentives of early retirement or they could defer activation of pension benefits until some later date, in the meanwhile continuing their current-employment earnings. The schemes were quite successful in expanding the range of actual retirement ages—so much so that the eventual legislative rescission of mandated retirement had little impact on the population of behaviors. The increased voluntarism of labor-force withdrawal implied that more and more workers were leaving under terms of their own choice, thus experiencing a transition in which they exercised greater personal agency. Postretirement satisfaction should then be largely a matter of the adequacy of income, health, social-support networks, and the like, in the end-state status—that is, a matter of the personal experiences of being retired, evaluated in terms of those factors. Insofar as the biographical specifics of the transition event and its conditions still figured into those end-state experiences, it should have been mainly as a function of how well the individual worker had plotted the calculus of choices when deciding a retirement date. Anticipating the transitional event of retirement is tantamount to anticipating postretirement activities, which implies {ceteris paribus) a greater likelihood of postretirement satisfaction if the anticipatory behavior had been voluntary and self-directed. But whether that greater likelihood of satisfaction is actually realized will depend partly on the extent to which the preretirement expectations are met. No doubt the greater latitude within which workers could individually settle the "timing problem" or a retirement date was a very attractive feature of the employer-provided pension schemes developed during the

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1960s and 1970s, even as much of the decisional burden was shifted from the strictures of a "common policy" to the individual workers themselves. The "choice" or "freedom capabilities" which Sen (e.g., 1992, Chapter 4) and others have insisted are a vital dimension of personal well-being were now increasingly exercisable in ways that could be expected to contribute to postretirement satisfaction. And indeed there is research evidence supporting that expectation—for example, Matthews and Brown's (1988, p. 563) report that the coincidence of actual with preferred retirement date "was the strongest predictor of retirement having affected individuals in a positive way." But an increased latitude of potential dates or ages at which to end a career job and exit the labor force does not automatically or uniformly translate into a voluntciry choice. That is so partly because various factors (e.g., an unexpected change in personal health) can arise within the latitude and perceptually dictate an exit decision and partly because the quality of "voluntariness" is as inherently relative as the quality of "satisfaction" or "adequacy." Thus, various factors can render an exit decision that is worker-initiated, and therefore voluntary from a legal standpoint, an experientially involuntary act. As Quinn and Burkhauser (1990, p. 317) put it, when faced with a present actual or anticipated experience of deteriorating health, wage-rate reduction, layoffs, or other risks and uncertainties, "many older Americans stop working. Is the decision voluntary? Yes, in the sense that they choose to do it xmder the circumstances; but no, in that the circumstances may have changed dramatically as they aged." And those circumstances can be composed not only of age-sensitive status characteristics of the individual workers but also of characteristics of the population of workers (e.g., supply-demand characteristics in an internal labor market) and indeed of the structure of supply-reduction incentives which have been integral to the expanded latitude in choice of retirement age. The abolition of mandated retirement ages has no doubt altered the terms under which experiences of pretransition conditions and of the transition event itself affect (i.e., are reconstituted in and are partially constitutive of) a sense of satisfaction with life after retirement. But those linkages surely remain in play, though they are probably more nuanced than before. Ekerdt and DeViney's (1993, p. S42) observation is apropos: the "anticipatory dynamics" of a "pre-retirement process" feed into "the more inunediate experience of retirement events and [into] post-retirement behavior and adaptation." An important dimension of that nexus of dynamics consists in the multitude of conditions collectively known as "framing" or "framing effects" (see Goffman 1974; Hazelrigg 1992). Framing is an instance of context dependence or sensitivity. Whereas other sorts of context dependence involve mainly structural relations and effects, framing is distinctive in that

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it is often intentionally instrumental. The gasoline retailer who sells at one price for cash-paying customers and at another (higher) price for creditcard customers could advertise the difference as a credit surcharge but knows that a preferable effect will be achieved by advertising it as a cash discount. As successful advertisers, playwrights, trial attorneys, horse trainers, and other practitioners of the arts of persuasion have long appreciated, the manner in which a decisional problem is framed can profoundly affect perceptions, informational salience and evaluation, expectation horizons, and other pertinent features of the problem. One well-docun\ented example of variable sensitivity to framing has to do with the tendency of actors, when deliberating choices, to overweight events or outcomes that are understood to obtain with certainty (e.g., mandated retirement, the monetary value of a "30 and out" benefit at activation, etc.), relative to events or outcomes that are regarded as only probable to one degree or another (e.g., extended layoff, loss of recall rights).^ Our chief interest in this chapter is with such differences of framing as manifested in the comparative structures of incentive/disincentive associated with the two early-retirement plans. In particular, we argue, the timing problem facing the auto workers ("now" or "later") was differently framed, depending on whether the problem was addressed within the policy context of the Regular Plan or within that of the Special Plan. Settling the problem under terms of the latter plan meant dealing with a rather different schedule of uncertainties, some of them ambiguous, and a different schedule of temporal constraints. Accordingly, workers who elected early retirement under one rather than the other plan would have experienced the decisional problem and the ensuing transition more or less differently, and that difference should be implicated in their postretirement evaluations. Our data analyses are keyed to two interview questions. The first asked all retired workers to "think about the timing of your retirement. How do you feel about your decision to retire? Would you say: (1) you wish you could have retired earlier? (2) you retired before you were ready? or (3) you are satisfied with when you retired?" The second question asked, "Overall, how satisfied are you being retired? Would you say you are very satisfied, somewhat satisfied, or not satisfied at all?" Analyses of responses to the two questions, hereafter referred to as "satisfaction with timing of retirement" and "status satisfaction," will be presented in tandem. Assessments derived from responses to questions such as the foregoing leave much to be desired, no doubt. In addition to the possibility that respondents systematically differ in their implicit semantic scalings of the vocabularies of "satisfaction," there is a sampling problem. Asked to evaluate the whole of a complex condition such as "being retired," respondents necessarily utilize some sort of (usually implicit) schema which organizes

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the part-whole relations of that complex condition and within which the referential locus of any given evaluative response is situated. Since the whole consists of multiple and heterogeneous specific conditions, an evaluative response manifests the outcome of a practical sampling across the specific conditions. That sampling introduces a potentially large amount of unmeasured variation. Some respondents, for example, might respond with an evaluation "averaged" across the manifold specific conditions; the implicit averaging could involve weighting (e.g., keyed by a recent event or experience that more or less temporarily orchestrated the whole), or not. Other respondents might offer evaluations that refer primarily or even entirely to this or that specific condition or partial set of specific conditions. The implicit choices of which parts should represent the whole can systematically vary from respondent to respondent (i.e., in accordance with the respondents' variable conditions); they may be temporally unstable (i.e., from one day or week to the next); they may be variably sensitive to the context formed by other stimuli (e.g., other questions in an interview schedule). Moreover, what we are calling "status satisfaction," or satisfaction with current circumstances, has certain observational and measurement properties in common with the "attitude" or "public opinion" concept. Because "satisfaction" is an intrabiographical evaluation of current biographical conditions, observing whether a person is or is not "satisfied" (and measuring the degree thereof) must ultimately rely on some sort of inquiry which elicits a personal report. While inferences can be constructed from more or less unobtrusive observations of behavior—including acts of omission as well as acts of commission, conversations, a bodily insouciance, and so forth—those inferences can be tested only by the contents of the observed person's report of his or her intrabiographical evaluation. After all, who better to observe a person's judgment than that person? But the report can be as much or more a reflection of the inquirer's stimulus than a mirror of the respondent's prestimulus state of mind. In other words, just as some proportion of respondents might not have a well-formed attitude or opinion on a given issue and yet respond to an interview question as if they did (see Chapter 6, note 6), so, too, the answer to a question about satisfaction can be mainly indicative of the fact that ordinary rules of conversational etiquette usually operate even in telephone interviews. Our data set offers no means of estimating, much less separating, any artifactual component of the self-reports.

FRAMING THE TIMING PROBLEM As we have pointed out in previous chapters, specific policy differences between the two early-retirement plans created significantly differ-

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ent experiential contexts for the auto workers. The Regular Plan offered, as its name suggests, a highly routinized set of schedules and practices. Although amended now and again, its basic outline had been in place for many years. Successive cohorts of senior workers had considered its advantages and disadvantages; many members of each cohort had opted to leave under its terms; a substantial fund of practical knowledge had grown up around it, helping to regulate individual workers' deliberations of the timing problem. Judging from the workers' behaviors, the single most important feature of the Regular Plan was its provision of maximum benefits at completion of 30 years of service; nearly all who exercised the RERP option did so after their 30th (or later) year. Because the incentive structure was actuarially "backloaded," a RERP retiree who was concerned solely to maximize the pension-income stream would have wanted to choose the earliest possible retirement age—which in practical terms simply meant that each year of delay beyond Year 30 depreciated pension wealth. Of course, most workers assigned positive value not just to pension wealth but to other goods as well (including the income effect of continued employment at GM). Settling the timing problem thus involved more or less complicated intraperceptual negotiations among competing goods, risks, and uncertainties. But the routinized technical terms and experiential history of the Regular Plan provided senior workers a correspondingly routinized decisional context—at least by comtparison to the Special Plan. The Special Plan was special not only because it offered an accelerated eligibility clock and added benefit incentives but also because of the comparative irregularity of the offer and the emotively charged, easy-to-appreciate field of immediate risks and uncertainties which the irregular offer announced. GM's occasional announcement that "the SERP window is now open"—addressed to a specific plant or plants^—signaled "trouble" in a way that the routinely available option of RERP did not. For workers in a targeted plant, "trouble" had ceased to be simply industry-wide; it was here, in this plant, now. The context for settling the problem of "When to retire?" had changed, and as we saw, especially in Chapter 4, that change ramified across senior workers' evaluations of retirement-relevant factors (e.g., SERP retirees were significantly more sensitive to pension wealth). Because the SERP window was open a relatively short period of time, any inclination to engage in a "learn first, then decide" strategy was necessarily constrained—perhaps as much by the workers' perceptions of urgency as by the actual length of the eligibility window. Alternative options were usually well-defined: apply for a SERP retirement, transfer to another plant, face the possibility of permanent layoff, or—^when the affected plant was scheduled only for trimming rather than total shutdown—hope to "bump" a less senior worker. But because most of the options were governed by uncertain probabilities of occurrence (i.e., the means by which to evaluate those probabilities were themselves less than certain), workers who had to

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deal with a SERF opportunity often faced a set of alternative gambles in each of which the odds of a given outcome could be only guessed. In broad outline, of course, the timing problem was typified by a number of features common to both plans. Deciding to retire "now" rather than "later" could, for instance, prove to have been "too soon," for any number of subsequent reasons. Or it could prove to have been "too late," also for various subsequent reasons. Election of early retirement under either plan, or postponement to next year or the year after, was always potentially subject to those and other ex post evaluations. But workers who elected early retirement under RERP (almost always under "30 and out") would more likely have experienced the decisional problem and its conditions with a greater sense of personal control, personal agency, and volimtarism— which should have then carried through to ex post evaluations, making the RERP retirees less likely to judge the actual retirement date (age) as "too soon" and, concomitantly, more likely to express satisfaction with postretirement circumstances of life. Or so we conjecture. By contrast, and again by hypothesis, SERF retirees would more likely have experienced the decisional problem and its conditions as coercive, hurried, and lacking any but second-best options: the vitamin-enhanced carrot of SERP's monetary incentives was offered up on the thorny stick of SERP's other incentives. Whereas RERP retirements were more often "pulled" by a balance of attractions, SERP retirements were more often "pushed" by a balance of risk aversions; and decisions undertaken chiefly from risk-aversive motivations more likely entail reconsiderations and regrets—in this instance, verdicts of "too soon" and dissatisfactions with the present circimistances of being retired or, to recall Friedmann and Havighurst (1954) once again, "having been retired." In sum, then, we expect to see a significant category effect of SERF on the measures of satisfaction. However, SERP retirements were rather heterogeneous, by comparison to retirements via the Regular Plan, and there is reason to think that some of that heterogeneity could be reflected as variation in the magnitude of the SERP effect. Regret, or ex post evaluation made under the perceptual rule of counterfactuals ("What might have been"), tends to be proportional to the ease with which alternative decisions and courses of action can be imagined.^ While the SERP retirees on average probably felt their decisions were constrained to a degree most RERP retirees did not, the SERP retirees as a whole faced a greater variety of decision-relevant options (albeit most of them negatively valenced— e.g., job transfer, permanent layoff) within a more varied context of eligibility rules. For example, although our data do not enable us to identify them directly, some of the men who became eligible under the Special Flan had surely been anticipating an early exit by way of "30 and out." SERP would have allowed these workers to leave with an enlianced benefit before com-

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pleting Year 30 (and without incurring the marginal tax on postretirement employment earnings)—though the attractions of a SERF opportunity were probably lessened when it came on the heels of a layoff. Or, as a second example, consider the SERF retirements that were drawn from the pool of workers who had evinced a sort of survivorship—that is, who had repeatedly deferred retirement well past Year 30: one can easily imagine that these latter men responded to the decisional problem created by a SERF opportimity in ways that differ, on average, from the responses of the previously described SERF retirees. These conditions suggest that an observed SERF effect might not have been uniform—a possibility which will be tested through the use of some interaction terms.

RETIRING TOO SOON Judging from their responses to the interview question, most of the retired auto workers were reasonably content in the view that they had retired at about the right time. Nearly three-fourths of the men said that they were satisfied with the timing of their exits; 1 in 10 wished they could have retired earlier, and 1 in 6 felt that retirement had come too soon. Some insight into the meaning of those evaluations can be gained by examining the retirees' reported "main reasons" for retiring when they did. For example, 7 of every 10 workers who said that they had retired at roughly the right time also said that they had retired when they did simply because they were "ready to retire." The corresponding proportion among the retirees who wished they had left earlier was virtually the same; but among the workers who felt they had departed too soon, only 2 of every 10 said they had been "ready to retire." In equally striking contrast, 52 percent of the workers who left too soon, versus 7 percent of those who left too late and 13 percent of those who left at about the right time, cited plant-closure or layoff experiences as the main reason for their exits. These comparisons strongly suggest that the principal axis of discrimination among the response categories for the "satisfaction with timing of retirement" question separated the workers who believed their exits had come "too soon" from all others. The "too soon" and "too late" responses were motivated by rather different sets of concerns. In view of the variant characteristics of the two early-retirement plans and their probable attractions, it would not be surprising to find that the SERF retirees were more often prone to the view that their departures had come too soon. Indeed, a simple coimt shows that they were roughly 2.5 times likelier than the RERF retirees to express that view, and correspondingly, they were less likely both to think that they had retired too late (8.4 versus 12.6 percent of the RERF retirees) and to think that they had retired

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at the right time (66.1 versus 76.2 percent). Since exits via SERP were usually quite closely connected to plant closures and to associated layoffs, one might further expect, by extension of the contrast noted in the previous paragraph, that the SERP retirees who said they had left because of layoffs and/or closures would have been especially likely to voice the belief that for them early retirement had been too early The data indicate otherwise, however. It is true that, when asked why they had retired when they did, the SERP retirees were almost three times as likely as their RERP counterparts to cite a plant closure or layoff experience as the main reason. And retirees who cited one or the other of those reasons were more than four times as likely as retirees who cited other reasons (45.4 versus 9.9 percent) to have reported that they left too soon. But this latter relationship was equally as strong among the RERP (40.8 versus 6.8 percent) as among the SERP retirees (47.8 versus 15.0 percent). Thus, it would appear that while differences between the two avenues of early retirement were linked to the workers' subsequent evaluations on the tiniing issue, those differences were independent of the two events—layoffs and plant closures—which distinguished the Special Plan as a supplemental instrument of laborreduction policy and because of which the opportunity to leave via the Special Plan carried a more pressing schedule of risks. Before accepting that conclusion, however, some additional tests need to be made. As we remarked in Chapter 4, actors' reasoned accounts of their decisions and actions are not necessarily reflective of, or coextensive with, corresponding causes and correlates of those decisions and actions. Not all of the retired workers who had been laid off prior to or at retirement and/or who had retired from a closing plant cited either of those reasons as the main reason for ending their career jobs at GM. Yet either or both events could have been a factor in their decisions. In order to examine the "timing satisfaction" issue in more detail, we estimated several multinomial logit models (where YQ = 1 if the worker was satisfied with his retirement date, Y^ = 1 if retirement came too late, and Y^ = 1 if too soon), testing a variety of plausible predictors, interactions, and functional forms. Of all the model specifications, only the five shown in Tables 7.1 and 7.2 yielded interesting results. None of the several model specifications, it should be noted, succeeded in discriminating any of the respondents who said they wished they had retired earlier (i.e., Y^) from those who were satisfied with their exit dates (YQ)—a result which buttresses our conjecture that the "too late" response did not express a disgruntlement (as did "too soon") so much as a sort of wistfully hypothetical revision of autobiography. Respondents who felt their departures had come too soon were somewhat more successfully identified, but in general even the best-fitting models accurately identified few departures from the modal category.

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There are nevertheless some significant predictors, and chief among them is the difference between retirement plans: the SERP retirees were likelier to have regarded their retirements as having occurred too soon, net of all other measured variables. Other significant predictors include preretirement household income, wife's employment status, the presence of one or more children (younger than 18) in the household, the Keep Up measure of health capability. Laid Off, and Plant Closed (see Table 7.1, Model 2). All are readily interpretable. Pension wealth had an effect only among the SERP retirees: the lower their pension assets, the likelier they reported that retirement had come too soon.^ Age, years of service, wage rate, total household size, education, occupational status (i.e., skilled versus production), and ethnicity showed no net effects (though see below with regard to the 30th service year). We also tested a set of binary-coded variables for year of retirement (1987,1988, or 1989) on the hypothesis that differences in elapsed time since retirement implied variable periods of adjustment to the retirement event (and/or variable accuracies of memory and recall); the results were consistently nonsignificant (in these and in all subsequent models). Finally, in an effort to specify the locus of the SEJU^ effect in greater detail, we tested several interactions in addition to the one between SERP and pension wealth. None proved to be significant.^ But two of the tests merit some attention nonetheless, in view of our earlier speculation that at least part of the SERP effect might be attributable to different exposures to layoffs and/or to different anticipations of retirement. Recall from Chapter 4 that a recent layoff experience diminished the likelihood of early retirement imder either plan, presumably because of a desire to replenish savings or reduce debts (see Table 4.5). But roughly a fifth of the workers who took early retirement under the Special Plan (versus 8 percent of the RERP retirees) did so despite a recent layoff. Or perhaps it would be more accurate to say that they retired because they had been laid off and despite concerns about depleted savings or increased debts. These SERP retirees would have been especially sensitive, one could argue, to perceived pressures connected with the SERP opportunity, thus would have experienced the retirement decision as involuntary, and later remembered the decision as unduly rushed, conflicted, and premature. In fact, the SERP retirees who had been laid off were likelier than those who had not (45 versus 18 percent) to feel that they had retired too soon. But so, too, among the RERP retirees (31 versus 9 percent). The interaction between SERP and Laid Off was not significant (at p<.05). The same is true for the interaction between SERP and Overtime. We had speculated that workers who had been looking forward to an early departure by way of "30 and out" and who were then presented with the option of leaving through the Special Plan well before Year 30 had even begun would have been less likely than other SERP retirees to exhibit dissatisfac-

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tion with the timing of retirement. In the absence of a direct measure of that anticipatory orientation, we again used Overtime as a surrogate measure and tested the second-order interaction among SERP, Overtime, and Thirty Plus (as well as the relevant first-order interactions). None was significant. We did find, as a by-product of that testing, a significant interaction between Overtime and Laid Off: retirees who had been working overtime were likelier to judge their retirement dates as undesirably early only if they had recently experienced a layoff. But here too the effect was indifferent by retirement plan. The results obtained for the second model shown in Table 7.1 are consistent with the expectation that, due to the temporal constraints and pressing uncertainties associated with an opportunity to retire imder the Special Plan, those workers who ended their career jobs with GM by taking a SERP exit would have more likely felt "rushed" in the decision-making process. It is clear that by comparison to the men who left imder the "30 and out" provisions of the Regular Plan, some of the SERP retirees were less than completely happy with the timing of their departures. But nothing in the second model directly addresses the inference that dissatisfaction with an untimely departure was linked to temporal constraints of decision making. Nor, for that matter, will the variable we are about to introduce; our data set lacks measures of the workers' perceptions and evaluations during the decision-making process. But we do have a retrospective measure which bears on the question to some extent. All of the retired workers were asked the following pair of questions: "When did you actually make the decision to retire? Did you decide before you actually became eligible for early retirement, or did you decide after you became eligible?" Then, depending on whether the response was "before" or "after," they were asked to estimate how long before or after. Precoded categories were supplied (as shown in the third model of Table 7.1, where "more than 2 years before eligibility" is the reference category).5 The response distribution for this variable differs in predictable ways relative to the different avenues of early retirement and, for the SERP retirees, relative to the difference between leaving after at least 30 years of service and leaving with fewer than 30 years (see Figure 7.1). For the RERP retirees (nearly all of whom, recall, retired under "30 and out"), the response distribution is strongly bimodal. If retirement came at the end of Year 30, as it did for about two-fifths of the "30 and out" retirees, the decision to take early retirement had usually been made a year or more prior to date of eligibility. If retirement came later than Year 30, it was usually more than 2 years later, and so the decision was often dated as "more than 2 years after eligibility." A similar bimodality characterizes the distribution of responses by the SERP retirees who left with at least 30 service years. But here both modes are posteligibility (one, the larger, is during the first 6

Aspects of Postretirement Satisfaction

^^onths before)

207

/ ^"f 7-12 ^ 1 3 1 1 7 1 1 7 / (months afterl Eligibility "^""^ Date Figure 7,1. Distribution of Relative Decision Dates.

months after the date of eligibility; the other, more than 2 years after), indicative or workers who had generally not been expecting to retire so soon. Finally, the distribution of responses by SERP retirees who left before Year 30 is strongly unimodal. Nearly half of them said their decisions to retire had been made during the 6 months following eligibility. Another one in six had decided during the 6 months immediately prior to eligibility— which is to say, probably between the announcement of the opening of the SERP window and the day their SERP applications were approved by management (which officially established their SERP eligibility). Those comparative distributions are consistent with the possibility that workers whose exits occurred within the context of the Special Plan were less likely to have been anticipating early retirement and more likely to have experienced the decision-making process as less than entirely voluntary. The question is, does variation in this measure of the relative date

208

Chapter?

of decision predict satisfaction with the timing of retirement, net of other factors? As can be seen in the results for the third model in Table 7.1, it does. The main line of contrast falls between those men who reportedly decided more than a year prior to eligibility date and the men who decided after that time: the former retirees were significantly less likely than the latter to judge their retirement dates (hence, ages) as earlier (younger) than they now would have preferred. Certainly this difference is to be expected. Workers who had settled on a retirement date (age) well in advance of eligibility date were likelier on average to have experienced the choice as voluntarily made, an exercise of personal agency in managing the end-game of a career in the auto industry. That these men were among the most satisfied with their choices, when later evaluating the hypothetical of alternative decisions, is hardly surprising. What is not apparent in the pattern of coefficients, however, is any evidence that workers who had made the early-retirement decision within the 6-month interval on either side of the eligibility date were any more prone to later regrets than were their colleagues whose decisions had been made at least a year after eligibility. This suggests that regret was less a function of temporal constraints in the decision-making process—a sense that one had been unduly rushed to think through a difficult decision—and more a fimction of the pressure of uncertainties associated with the Special Plan. The two models reported in Table 7.2 were designed as a means of exploring that issue a bit further. Note that the first 12 terms (after the constant) are binary-coded variables representing the cells of a cross-classification of retiren\ent plan, a dichotomy of seniority level, and a trichotomy of the "eligibility-relative decision date" variable (where "At Eligibility" refers to the two 6-month intervals surrounding date of eligibility). The coefficients for these binary-coded variables thus capture the sum of main effects and first-order and second-order interaction effects. Note that the coefficients for RERP retirees who left before Year 30 during any one of the three intervals are troubled by coUinearity because of the paucity of cases. But these cells are substantively of less interest, and the coUinearity problem does not compromise the other estimates. Two main conclusions can be drawn from the pattern of coefficients in Table 7.2. The first is that differences in the eligibility-relative date of decision had very little effect on satisfaction with the timing of retirement. Consider that of the dozen categories of workers represented in the first 12 rows (after the constant), the one category of workers who would have most likely felt rushed and pressured when faced with a SERF opportunity were those who retired with fewer than 30 years of service and whose decisions were made "at eligibility" (i.e., the second of those 12 rows). To be sure, they were likelier than "30 and out" retirees whose decisions were

Aspects of Postretirement Satisfaction

209

made well ahead of eligibility (the reference category) to have later expressed the regret that retirement came too soon. But no more so than other SERF retirees who left before Year 30. Second, it is clear that "Too Soon" was a judgment calculated mainly with reference to the 30-year mark and that this was a fimction of departure via SERF, without regard to whether the decision had been made before, at, or after eligibility date. Indeed, separate tests of the first-order interactions between SERF and "At Eligibility," on the one hand, and "After Eligibility," on the other, indicated once again that the SERF effect was substantially uniform, at least with respect to the small number of measured variables at hand. STATUS SATISFACTION Seven of every 10 retired auto workers described themselves as "very satisfied" with being retired. Moreover, for every one of the remainder who said he was "not at all satisfied," nine described themselves as "somewhat satisfied." Should one conclude, then, that the retired auto workers were a contented lot, save for a very few? Or is it more remarkable that nearly onethird of them were not "very satisfied"? Without a comparative context or some other relevant benchmark against which to measure that distribution, the proportions signify little beyond a frequency count. And even then, the underlying metric—"degree of satisfaction"—would continue to be a troubling question.^ But our concern here is not to examine the substance of the respondents' metrical meanings; we haven't the requisite data even for beginning that task. Rather, the metric issue will remain in its present woolly state as we assume an internal anchoring of the semantics of "being very satisfied with being retired" (versus not). Our interest will be directed primarily to differences in the workers' self-reports, taken at face value, in conjunction with the alternative retirement avenues. For much the same reason we had expected that SERF retirees would more often report that their early retirements had been too early, we also expect a corresponding difference in status satisfaction. This second expectation is confirmed at the bivariate level. SERF retirees were significantly less often "very satisfied" (64 percent, versus 75 percent of the RERF retirees) and more often "not at all satisfied" (5 versus 2 percent). However, since status satisfaction correlates with the evaluation of retirement date as "too soon" (([) = -.45; p<.001), it is possible that the SERF effect in status satisfaction was simply a function of the fact that the "too soon" verdict occurred more often among SERF retirees (see Figure 7.2). In order to assay the net effect, we turn to a multivariate context. Regardless the difference retirement between plans, a number of specific conditions of life as a retired person should figure into an overall as-

SERF Retirees, fewer than 30 years

Too Soon

Right Time

Too Late

SERF Retirees, 30+years

Status Satisfaction Very Somewhat Not At All

Too Soon

Right Time

Too Late

RERP Retirees, 30+years

Too Soon

Right Time

Too Late

Timing of Retirement Figure 7.2. Status Satisfaction by Satisfaction with Timing of Retirement.

Aspects of Postretirement Satisfaction

211

sessment of the quality of life—for instance, health capabilities and level of income. As can be seen in the first column of Table 7.3, the retired auto workers' evaluations did vary accordingly. Those who said they had experienced no difficulty in keeping up with their jobs in the plants were likelier to report that they were very satisfied with being retired.^ So, too, those who had higher preretirement household incomes. The monetary value of the respondent's pension benefit, whether measured as pension wealth (i.e., PDAV, as in Table 7.3) or as monthly income, also correlated positively with status satisfaction, but the correlation, very weak at the bivariate level, disappears once other covariates are controlled.^ The SERF effect is robust net of those covariates and net of a significant effect of Laid Off as well.^ However, it is apparent from column 2 that the disproportionate tendency of SERF retirees to hedge their assessments of status satisfaction stemmed from the fact that they were likelier than the RERP retirees to have remembered their retirements as premature, and this latter judgment had a strong negative effect on status satisfaction (as captured by the coefficient for Retired Too Soon). In other words, evaluative perceptions of conditions under which the transition into the retirement status was made extended beyond the transition event itself and influenced evaluations of current circumstances, net of financial and health-relevant features of those circumstances. Moreover, as indicated by the coefficient for interaction between PDAV and Retired Too Soon in colimm 3, the effect of the Too Soon judgment was sensitive to pension wealth. Though always negative, the Too Soon effect was weaker the higher the value of pension wealth (e.g., at $100,000 the effect was -2.317 + .600 = -1.717; at $200,000 it was -2.317 + 1.200 = -1.117; and so forth). On average, the PDAV sensitivity of the Too Soon effect was indifferent by retirement plan (i.e., the relevant second-order interaction was not significant). However, since the mean PDAV was lower among SERP ($158,560) than among RERP retirees ($193,330), it is nonetheless true that the negative effect of Too Soon was stronger among many of the SERP retirees (especially those who retired before Year 30, for whom the mean PDAV was $123,490) than among the majority of the RERP retirees. In sum, SERP retirees were, on average, likelier to have "retired too soon" (Table 7.1). Retiring "too soon" often implied below average pension wealth, and retiring "too soon" with below average pension wealth, which occurred more often among SERP retirees, entailed a lower probability of high satisfaction with being retired. While the preceding interpretation is entirely plausible and consistent with expectations, we need to deal more explicitly with the fact that the two measures of satisfaction—one concenung the timing of retirement and the other concerning current circumstances of being retired—are simultaneous. That simultaneity could well have been structured by the respondents as a part-whole relationship (i.e., timing satisfaction could have been

212

Chapter?

Table 7.3. Status Satisfaction: Probit Regression (Y = 1 if Very Satisfied with Being Retired) 1

2

3

4

5

6

.109 (.219)

.369 (.236)

.568(.250)

.247 (.209)

.634(.252)

.257 (.222)

PDAV (000s)

-.001 (.001)

-.001 (.001)

-.002" (.001)

-.001 (.001)

-.002(.001)

-.001 (.001)

SERF retiree

-.267* (.088)

-.148 (.093)

-.138 (.094)

-.249* (.089)

-.127 (.094)

-.286* (.091)

Household income (000s)

.009* (.003)

.010* (.003)

.009* (.003)

.009* (.003)

.009* (.003)

.008* (.003)

Keep up

.457^ (.102)

.376*^ (.110)

.340^ (.110)

.379(.105)

.323* (.113)

.386' (.105)

Laid off

-.417^ (.119)

-.148 (.129)

-.141 (.130)

-.436' (.119)

-.171 (.130)

-.446' (.119)

Plant closed

-.038 (.106)

.098 (.114)

.094 (.115)

-.051 (.106)

.096 (.115)

-.041 (.106)

Constant

Retired too soon

—

-1.363^ (.117)

-2.317' (.392)

—

-2.270^ (.395)

—

Retired too late

—

.206 (.152)

.198 (.152)

—

.199 (.152)

—

PDAV X retired too soon

—

—

.006* (.002)

—

.005(.002)

—

Dissatisfied with job

—

—

—

-.814' (.193)

-.619* (.209)

-1.230" (.303)

SERF X Dissatisfied with job - L o g likelihood Predicted (%) Satisfied Not Overall OLS adjusted R^ •p < .05 (two-tailed tests) ^<.01 'p < .001

"""•

— " •

640 95.1 9.2 69.7

.05

562 94.2 41.2 78.5

.21

558 94.6 40.6 78.6

.21

630 95.1 14.5 71.3

.07

• ^ ~

554 94.6 42.2 79.1

.22

.739 (.391)

630 95.0 14.5 71.2

.07

Aspects of Postretirement Satisfaction

213

regarded as a component of status satisfaction), and evidence from studies of part-whole relations among the stimulus properties of interview questions demonstrates some complex "carry-over effects" in the sequence of responses.io Some of those effects yield an overestimated correlation between the "part" question and the "whole" question, while others yield an underestimated correlation. As a response to the simultaneity problem, we treated timing satisfaction as endogenous to status satisfaction and instrumentalized the Retired loo Soon binary variable on the basis of a probit equation, using the list of predictors from the second model of Table 7.1. Substituting the fitted values for the observed values of Retired Too Soon (and deleting Retired Too Late as noise), we then re-estimated the equation represented in column 2 oi Table 7.3. The coefficient for Too Soon was no longer significcint, while those for the other predictors were essentially as reported in column 1. Be:ause of this outcome, we conclude that the measure of timing satisfaction ivas probably a component of the measure of status satisfaction. Thus, induding the observed distribution on Too Soon in the equations predicting status satisfaction (as in Table 7.3) amounted to shifting a component of the dependent variable from the left to the right side of the equation. The fact that under this specification the coefficient for SERF Retiree was reduced to insignificance (columns 2 and 3) means that the SERF effect was specific to the timing-satisfaction component of status satisfaction. The simultaneity problem also obscures the possibility that workers tvho took early retirement under the Special Plan had more often been dissatisfied before retirement—dissatisfied with the job, with the plant, with the company. Whereas our interpretation has assumed that SERP retirees ess often expressed satisfaction because of the circumstances of their departures, the evidence so far examined is consistent with an alternative hypothesis—^namely, that they were less often satisfied in retirement because di self-selection into the pool of SERP applicants (i.e., those who applied A^ere more disposed to dissatisfaction) and/or because management more Dften approved the applications of unhappy workers. Of course, either or 50th of those selection processes could have operated in concert with an effect of SERP retirement per se. In other words, the alternative hypothesis is lot necessarily exclusive of the interpretation we have been advancing, nor :an the alternative be ruled out of hand. Life on the assembly line is popuarly depicted as rife with discontent, and indeed comparative studies do >how that line workers tend to be less satisfied, or less often satisfied, than skilled workers. This is at least as true of plants in the auto industry as of >ther industrial plants. On the other hand. Form's (1973, pp. 13-14) observation from his study of auto workers—that "most workers have come to ;erms with their jobs"—reminds us of the importance of adaptation and

214

Chapter?

survivorship, which in any setting usually entail a cohort effect: younger cohorts tend to be less satisfied than more senior cohorts with conditions of the setting. 11 Despite the cross-sectional nature of our data, the selection aspects of the problem can be addressed. Our first approach is represented in the fourth and fifth columns of Table 7.3, which include a binary-coded measure of whether the retired auto workers had been dissatisfied with their jobs prior to retirement. This measure is obviously less than ideal in several respects. For one, it derives from the retirees' stated reasons for retiring (i.e., the 4.4 percent of the retirees who said they had retired because they "didn't like the job any more," were "tired of the job," etc., were coded as "Dissatisfied with Job"), which probably means that the measure is an underestimate. By the same token, however, it probably discriminates those who were most disgruntled—with the job, the plant, the company, or all three—and in that sense it should be rather good in capturing the workers who were selected (or self-selected) into retirement because of pre-existing dissatisfaction. Interestingly, the proportion coded as Dissatisfied with Job was indifferent by retirement plan. But the retirees who had been Dissatisfied were likelier to judge their departure dates as Too Soon (38 versus 15 percent; p<.001). Since this latter correlation was not significantly different by retirement plan, we are encouraged in our assumption that our surrogate measure of job satisfaction does manifest a difference in predecision experiences and is not merely a reflection of unhappiness with the decisional process.i2 As can be seen in column 4, Dissatisfied with Job is a significant predictor of status satisfaction. Moreover, it remains significant even after timing satisfaction is controlled (column 5). These results are consistent with the conjecture that a tendency toward dissatisfaction before retirement would to some extent survive the transition out of the labor force and be reproduced as a tendency toward dissatisfaction with the circumstances of life as a retired person. Note, however, that the SERF effect persists (column 4). And even more to the point, the SERF effect is sensitive to preretirement dissatisfaction (colimm 6), but in the direction opposite to what one would expect by the argim\ent of self-selection (or selection by management). That is, the interaction between SERF Retiree and Dissatisfied with Job is positive (though significant only at p = .06 in a two-tailed test). Thus, SERF retirees who had departed primarily because they had been unhappy with their jobs were if anything more likely to report that they were "very satisfied" with being retired (i.e., -.286 + .739 = .453), whereas their fellow SERF retirees who had retired primarily for other reasons were less likely "very satisfied" (i.e., -.286). While these results cast doubt on the hypothesis that the SERF effect manifested selection on disgruntlement, the simultaneity problem still gives ample reason for caution. However, we esti-

Aspects of Postretirement Satisfaction

215

mated a set of selection models pertinent to the hypothesis, and these analyses also offered no support. In sum, the main story that emerges from the analysis has two parts. One part recalls a principal conclusion of Barfield and Morgan's (1970, pp. 140, 143) investigation of retirement satisfaction during the mid-1960s— namely, that those retired auto workers who remembered the transition as "planned" rather than as "unexpected" were likelier to give high marks to "life since retirement." During the 1980s as well, a sense that the transition had occurred primarily as a function of personal choice made a significant difference in later evaluations of personal circumstances. The other part of the story, heretofore mostly neglected, is that the vast majority of the retired workers apparently felt that their circumstances in retirement were relatively good, and the few who did not were orUy weakly discriminable by measured factors of financial, health, and related capabilities. To the extent that measured factors did discriminate among the self-reports of satisfaction with the retirement status, they did so mainly between retirees who were apparently unreservedly happy with their circumstances and retirees who had at least some reservations. But even in this contrast, it is worth repeating, the analyses suggest that financial and health capabilities, though not without importance, were perhaps less decisive as a focus of those reservations than were issues of personal agency and control with respect to the timing of the transition. If the decisional process was remembered as one in which exit was chosen in a relatively voluntary, unconstrained manner, the timing of the exit was judged to be satisfactory. Two sorts of constraints interfered with that directiveness. Some constraints—such as the actuality or threat of being laid off, often in conjunction with a plant closure—^were probably perceived by the workers as externally imposed, imfair, even unnecessary. Other constraints—such as worries about ability to keep up with the pace of work, having a child in the household—were equally elusive of personal control but probably did not carry quite the same emotive force in personal evaluations of ability to retain primary control over the timing problem. Both sorts of constraint discriminated retired workers who remembered the transition as "too soon." The fact of departing via the Special Plan reproduced but apparently did not accentuate the more "external," "impositional" constraints. To the extent that satisfaction with the timing of retirement was independently affected by SERP (i.e., independent of Laid Off, Plant Closure, etc., as indicated by the significant net effects in Table 7.1 and 7.2), this effect was probably capturing a remembered anticipatory experience of impending layoffs, as distinguished from the remembered experiences of those who had retired after actual layoffs. In any case, dissatisfaction with the timing of the exit carried over to a dissatisfaction with being retired. Again, financial and health capabilities certainly made a difference in the evaluations of current circimistances. But so

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too did a sense of personal agency in managing the transition into the status of "retired person." Generally speaking, older workers tend to be higher in job satisfaction and in commitment to the job (e.g.. Form 1976, pp. 124-130; Kalleberg and Loscocco 1983; Glenn and Weaver 1985; Lee and Wilbur 1985; Eichar 1989, pp. 68-69; Bridges and Villemez 1994, pp. 150-153). Against that background, Ekerd and DeViney's (1993) evidence that workers approaching the retirement date increasingly regard their jobs as burdensome is indicative of the initial stages of disengagement, a shift from loyalty to exit. Anticipating a future significantly different from the present, workers begin the transition by gradually resorting preferences and withdrawing commitment to those present activities that will soon be abandoned. Features of the job that yesterday were tolerable or even barely noticeable become irritants because they now stand out against their projected absence in a near future. By the same token, since the rate at which future goods have been discounted relative to current goods is partly a function of the proximity or vividness of the future goods, the prospective value of alternative activities places present irritants is sharper relief. Insofar as the anticipative behavior is undertaken from a sense of personal agency and control, it generates a bias toward postretirement satisfaction. That bias can quickly decay, of course. To recall Friedmann and Havighurst's (1954, pp. 189-194) analysis, because the "extra-economic meanings of work" often retain salience to a person's sense of well-being long after withdrawal from the labor force, satisfaction with life as a "retired person" is in some considerable measure a function of the ability of retirees to substitute analogous meanings through other activities. The point is surely as pertinent in the context of the 1980s as it was 30 years earlier, despite all the differences between the two historical periods. Mannheim (1940, p. 317) noted during an even earlier time that "The average citizen is unable to invent new uses for [his or her] leisure," and as a statement of intrabiographical comparison (rather than of comparison across historical periods) that may still be true. Nevertheless, when senior workers engage in anticipatory behaviors on a self-selected basis, they no doubt create a bias toward subsequent satisfaction both with the transitional process and with posttransition circumstances. But for senior workers who do not engage in that behavior—that is, who enter the transition "prematurely" because of conditions they regard as external and coercive—subsequent evaluations of current circumstances as well as of the transition event are less likely to be favorable.

NOTES 1. The literature pertaining to this particular class of framing effects has become quite large; most of it is from research in experimental psychology and experi-

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mental economics. For a sampling, see Savage (1954, pp. 101-104), Edwards (1961), Slovic, Fischhoff, and Lichtenstein (1982), Machina (1987), Tversky and Kahneman (1981; 1987), and Einhom and Hogarth (1987). 2. For reviews of relevant evidence, see Kahneman and Miller (1986) and Miller, TurnbuU, and McFarland (1990). 3. One could argue that it was not pension wealth but the monetary value of the current monthly benefit that determined satisfaction with the timing of retirement. Accordingly, we re-estimated the models with monthly benefit amount in place of PDAV. The results were the same. 4. Interactions between SERF and each of the other predictors shown in the second model in Table 7.1, as well as with other plausible predictors (e.g.. Age, Service Year, Overtime, Skilled Worker, Education) and with year of retirement, were tested. 5. The resulting measure is problematic in at least two respects. First, studies of the structure of recall have demonstrated that retrospective efforts to date an event are more susceptible to error than are efforts to recall the mere fact of an event (see, e.g.. Brewer 1988). Second, "eligibility" was almost surely interpreted by each respondent in terms of the plan under which he retired. That was of course true for those who left under "30 and out" and for those who left under SERF with fewer than 30 years of service. But it was probably also true of the men whose SERF retirements came well after the 30th year, even though they had been eligible under RERF at the end of Year 30. The distribution of responses by the SERF retirees tends to support that latter conjecture. As Mitchell (1988) found, workers often do not possess accurate information even of their eligibility dates. But at least in the present instance the "inaccuracy" was probably the result of a framing effect in the recall process: workers who retired under SERF well after Year 30 had evidently not been anticipating retirement any time soon, and when subsequently asked to date their decisions relative to eligibility they reframed the eligibility date into a SERF context. 6. Early retirees in the Barfield-Morgan study (1970, Chapter 9) were asked, "In general, how do you feel about your life since retirement?" One-fourth of the respondents gave a "very favorable" response; one-half, a "favorable" response; 1 in 8, a "neutral" or "pro and con" response; and about 1 in 10, an "unfavorable" or "very unfavorable" response. Depending on whether the "very favorable" and "favorable" responses are aggregated in comparison to the "very satisfied" responses from the current survey, the distributions are either highly similar or highly different. If the comparison contains a historical-period effect—as well it might, since "early retirement" was still a relatively new experience in the very different economic climate of the mid-1960s—knowing what part of that effect captures a difference in the semantic scalings of alternative evaluative words, and what part a difference in personal experience of the retirement status, is a rather daunting task, to say the least. Another benchmark can be determined from "job satisfaction" studies, which report "positive" responses from roughly four of every five adult male workers, with even higher rates among men older than 50 (see, e.g., Glenn and Weaver 1985, p. 92; Hamilton and Wright 1986, pp. 66, 220-221). We asked the nonretired auto workers "how satisfied" they were "with [the] decision not to retire yet." Six in 10 said they were "very satisfied," while 1 in 3 said "somewhat satisfied," and 6 percent said "not at all."

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7. The dependent variable throughout Table 7.3 is coded a Y = 1 if Very Satisfied and Y = 0 if otherwise. An alternative binary coding—Y = 1 if Not At All Satisfied and Y = 0 if otherwise—^was tested in parallel regressions; there were no significant net predictors of that contrast. Despite misgivings about variant semantic differences between "very satisfied" and "somewhat satisfied/' we also tested a logit coding of three separate end-states; the results, generally consistent with Table 7.3, indicated that the main contrast was between "very satisfied" and "somewhat satisfied." 8. Mean values of PDAV and of monthly benefit were (respectively): $178,000 and $1,249 among the retirees who were "very satisfied"; $173,000 and $1,213 among those who were "somewhat satisfied"; $155,000 and $1,140 among those who were "not at all satisfied." Note that for each of these variables the difference between the third and the second mean is greater than the difference between the second and the first. Pension wealth or pension income was the one factor that tended to discriminate those few retirees who were most dissatisfied. 9. Other potential predictors of status satisfaction—for example, education, marital status, wife's employment, age, occupational status—were not significant. Nor were interactions of SERF with pension wealth or any of the significant predictors. 10. Although carry-over effects tend to occur regardless the part-whole ordering of the questions, the order does make a difference in the composition of effects. For instance, when the "part" question is first in sequence (as it was in the interviews for this study), the carry-over effect can reflect either an assimilation process (i.e., responses to the "whole" question tend to assimilate responses to the earlier "part" question) or a subtraction process (i.e., respondents tend to exclude considerations relevant to the "whole" question if those considerations had been involved in their responses to the previous "part" question). There is some evidence that assimilation occurs more often when several "part" questions precede the "whole" question, while subtraction is likelier with only a single "part" question (as in the present instance). For a sampling of research pertaining to these still poorly understood relationships, see Tourangeau and Rasinski (1988), Schwarz, Strack, and Mai (1991), and Mason, Carlson, and Tourangeau (1994). 11. Documentation of this cohort effect in work settings, including auto plants, has a long history; see, for example. Walker and Guest (1952, p. 135), Blauner (1964, pp. 117-118), Komhauser (1965, pp. 9-10, 57-61, 166), Nash (1976, pp. 79-85), Kalleberg and Loscocco (1983), Glenn and Weaver (1985), and Hamilton and Wright (1986, p. 235). Hirschman's (1970) analysis of the interplay among "exit, voice, and loyalty" is again apropos. Members of younger cohorts tend to be sorted between loyalty and exit as they age. Seniority brings higher pay and higher job security but also, as Nash (a chief steward for UAW) pointed out, a variety of other amenities, including greater "voice" in the regulation of tasks. Although in many ways an antithesis of the small-shop culture described by Harper (1987), the shop floor culture of the assembly plant nonetheless does contain ample space for shared recognitions of pride in a mastery of task and in solutions of voice (see, e.g.. Hamper 1991).

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12. Another correlate of the measure also buttresses that assumption. Those who had not recently experienced a layoff were more likely than those who had to cite Dissatisfied with Job as a main reason for retiring when they did. The relationship is weak (
8 Inducing Early Retirement: Some Conclusions in Perspective

REVISITING MATTERS OF CONTEXT The men whose decisions we have been examining were survivors in more than the necessary sense of life expectancy curves. They were also survivors of the jarring, wracking^ numbing toil of life on and aroimd the assembly line, making a living for themselves and their families by making cars and trucks for the American consumer—and in the process making jobs for retailers and mechanics and service-station operators and highway and bridge construction crews, high salaries for company managers, and profits for shareholders, banks, and corporate principals. During the span of two, three, in some cases even four decades, they had successfully negotiated with machinery that could maim or worse, and sometimes did. They had endured cycles of layoff and recall, work stoppages and speed ups and foul ups. They had pimched their times cards and played by the rules of the shop floor culture and, more or less, by those of the front office as well. Sometimes they imagined switching to a different line of work; talk of being self-employed and one's own boss was a common catharsis (Hamper 1991). But with so many years already behind them, they had gone too far to change now. Besides, where else would their skills translate into the same high wage-rates? They had the security of seniority, the respect of their co-workers, and some authority of voice accumulated from years of experience and a large union. They also had accumulated sizeable investments in a good pension plan. The many years of working in coordination with "the line" had at some point transmuted a job into a career (if bluecollar workers were allowed to call it such), and most of them knew, whatever their occasional daydreams might say, that when the time came to turn in the gate pass, it would be because of retirement. The main question was the date of that final exit, not the form it would take. 221

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However, these men had also survived to see their industry, their employer, and their union caught up in a convergence of long-term politicaleconomic processes which were profoundly altering the conditions under which the form as well as the date of that final exit might be decided. The automotive manufacturing business in the United States was "under siege" (Altshuler et al. 1984), and it was clear that the industry's troubles added up to much more than just another low point in the traditional pattern of "boom and bust." During the 1950s and 1960s, when nearly all of the members of our sampled population were beginning their employments at General Motors, the U.S. industry exercised dominion over the market in cars and trucks throughout Nortti America and much of the world beyond. Hardly anyone imagined that "foreign competition" (a telling phrase) could seriously threaten that dominance. But by 1980 the industry was under severe challenge even at home. Plant capacity substantially exceeded demand for the U.S. products, which consumers were all too often judging to be of inferior quality relative to the new imports from Japan. Excess plant capacity spawned a new euphemism—"downsizing"—as dozens of plants were permanently closed and hundreds of thousands of workers were laid off, often without hope of ever hearing the sound of recall. The problem of product quality or value raised issues beyond the size of the industry's work force, however, and in response U.S. auto makers began to redesign major features of the production process, including the social relations involved in the extraction of value from labor. Traditional rules governing the organization of work were changing rapidly. So, too, were the traditional rules governing the end-game of a career. The effects of downsizing were immediate, direct, and obvious: as plants were shuttered, there were simply fewer jobs to go around, and the reductions entailed some alterations in the logic of job rationing. Indeed, while the rationing of jobs was nothing new (a firm's internal labor market, governed by a job classification system and the rule of seniority, was itself a rationing device), the drastically revised conditions of labor demand reframed job rationing, giving it much starker salience as a rationing of job loss and unemployment. The seniority-based regulation of layoffs, chances of recall, and opportunities to transfer to surviving plants brought the principle of seniority under growing pressure, as competition for surviving jobs in the internal labor market intensified. Tensions increased; solidarity suffered. Senior workers who had reached eligibility age for early retirement were often called upon by their junior colleagues to accept retirement, and as the companies agreed to sweeten the financial terms of the early-retirement plans, the pressure of expectation increased accordingly. By comparison to the train of plant closures and layoffs, other dimensions of the companies' restructuring efforts were somewhat slower to take shape. Management's perennial search for greater efficiencies in the pro-

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duction process had always emphasized "excessive labor costs" and "inflexible work rules" as major impediments. That emphasis continued. But "restructuring" implied something more systematic, bolder, more fundamental, than piecemeal amendments and incremental gains. New sorts of economies in the production process were wanted, and these could not be achieved as quickly as shutting plants. Nevertheless, by the time the members of our sampled population were evaluating the prospects of early retirement under terms negotiated in the 1987-89 contract, the search for new economies had already resulted in a number of important revisions. Much of the revision had been stimulated by observations of techniques developed and demonstrated so successfully by Japanese auto makers, Toyota in particular. The lessons adaptively applied by the U.S. companies were not so much of machine technology—though for a time there was a flurry of talk about, and a few (mostly disastrous) experiments in, "robotizing" productioni—as of the organizational technology of the production process. For example, the elaborate network of hundreds of highly specific job categories was being dismantled; "cross-training" was introduced (e.g., production workers were trained to repair the equipment); new "work team" strategies and worker-participation programs (billed as Quality of Work Life) were introduced or expanded. These and similar other changes affected long-established lirJjcages between worker and machine and between workers and management, but they also affected relationships among the workers themselves. The declassification of jobs, for instance, entailed not only new orderings of task performances but also (as that other sense of "order" implies) shifts in relations of power. One of the most important of the revisions of organizational technology concerns the scheduling of components of the production process and thus the warehouse function. In previous decades the most successful U.S. auto makers had adopted strategies of vertical integration, including the manufacture of large proportions of the component parts of their final product "in house"—^batteries and headlamps, and the like, as well as chassis, bodies, and engines. Large inventories of parts were maintained in warehouses "just in case" they might be needed (because of a surge in demand, for instance, or a worker slowdown or strike in one of the parts plants). During the 1980s the companies increasingly switched to "outsourcing"—obtaining more of the component parts from coordinated subcontractors who compete for the business—thus minimizing in-house inventories to a "just in time" schedule. While the just-in-time approach "refers narrowly to a way of organizing the inmiediate manufacturing labor process and buyer-supplier relationships between firms," as Sayer and Walker (1992, p. 170) noted, it is also "normally surrounded and supported by a wider set of practices regarding skills, labor-management relations, and labor market conditions." Indeed, the shift from the just-in-case to the

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just-in-time scheduling strategy has affected a good deal more than the queuing of physical materials and components of the final product assemblage. Corresponding shifts have occurred in management strategies to increase efficiency in the uses of labor-time. Consider, for example, the regulation of demand for labor-time within a firm's internal market. The just-in-case strategy regulates the risks of uncertain demand by queuing workers in the warehouse of layoffs: as demand declines, workers are put on the shelf, so to speak, in order of seniority; as demand increases, workers are taken off the shelf, again in order of seniority. When the industry adopted this strategy of layoff-and-recall cycles (replacing the older practice of hiring-and-firing cycles), the behavioral regimen suited to high-voliame, machine-driven assembly line production (the so-called "Taylorist method" of organizing work) was not part of the toolkit that most yoimg adults brought to the firm's employment office. A newly hired worker usually had to be trained in a number of crucial behavioral skills—for example, clock punctuality, moving in subordination to the mechanical logic of the assembly line, mental endurance of highly routinized coordinations across highly atomistic task performances, and so forth. The start-up training costs for new employees—converting them into instruments of a "well-oiled machine"—represented an investment which the firm learned to protect by warehousing the skills during slack periods. Since this strategy complemented unionized labor's interest in job security and a stable membership roster, and thus formed an important element of the developing "labor accord," management's preference to protect its investments in workers trained to a particular behavioral regimen was doubly reinforced. A rather complex organizational rationality grew up around and through the just-in-case logic. By 1970 the use of warehousing for trained labor-time, as well as for physical materials and parts, was a strongly entrenched element of a larger system of relations. Meanwhile, the toolkit of most young adults had long since been amended; most new employees appeared on the scene as embodiments of "Taylorist" behavioral skills. It was now usually possible to take those skills for granted as a platform from which on-the-job training in newer skills of horizontal, information-coordinated processing (work teams, QWL, etc.) might proceed. During the late 1970s and early 1980s, as the auto makers reduced the size of their work forces, they also began to shift away from the just-in-case strategy. Massive layoffs occurred during the severe recession of the early 80s. Many of those layoffs proved to be permanent; the size of the warehouse shrank. When product demand improved after the recession, the companies opted not to recall a proportionate number of workers (though GM was a partial exception). Instead, management, having won this concession from the union, substituted increased reliance on overtime work. In effect (and though the parallel is inexact), the

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just-in-case warehousing function was being replaced to some extent by a technique of flexible scheduling that has some of the features of the just-intime strategy. A smaller work force is expected to contribute overtime in correlation with fluctuating demand, just in time to meet increases in demand. The layoff-and-recall cycle is not dead, to be sure. But with the new corporate emphasis on "lean work forces" in an age of increasingly global labor markets, the intrafirm labor-time warehouse is not likely to return to its former proportions. The shift to a just-in-time strategy is integral to a broader transition—from reliance on "tenure contract" forms of exchange and organizational rationality to greater use of "spot-market" forms— which has been occurring in a wide range of workplaces, blue-collar as well as white, and will probably continue. Boden's (1994, pp. 210, 211) remarks about "the local/global workplace of the future" are apropos: "Effective work settings and thus successful organizations will increasingly depend on local, decentered, on-the-spot decision-making.... [The] current emphasis on 'just in time' production processes will be critically connected to 'just here, just now' interpretations of incoming information and understandings of unfolding events. Workers at every level will be affected by a speeded up, interactive work environment that will be not simply technologically complex but interpersonally demanding. In the workplace of the future, there will be no hiding places, no time out." A world of beepers, pagers, cellular phones, satellite links, and so forth, is a world in which one is always "on call." As geographical distance is abolished by new technologies of communication, coordination, and control, the warehouse function becomes less and less relevant.

RATIONALITY AS PLAN AND BEHAVIOR As we indicated in Chapter 2, General Motor's size was both a weakness and a camouflage of other sources of weakness within a giant, multidivisional corporation struggling to "reinvent" itself in a rapidly changing competitive environment. Although GM participated in the early rounds of plant closings and layoffs, it was comparatively slow to implement some of the permanent alterations of strategy which Ford and Chrysler made during the early 1980s. Thus, for example, GM recalled workers at a higher rate after the recession, returning its work force to within 20 percent of the prerecession level. Unlike Ford, GM was operating its total production facility at much less than full capacity. GM was slower to shift to an aggressive policy of outsourcing. And whereas at middecade Ford had already shifted to the overtime strategy, scheduling workers an average of 10 extra hours per week, GM was still scheduling plants for closure and workers for indefinite layoff. The urgent need for action was apparent; internal analysts recom-

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mended in 1985 that the number of active workers on GM's payroll should be roughly halved during the next 10 years. The dilemma was to find a way to achieve the reductions within a negotiative context that included not only the uiuon's resistance but also the fact that Ford, financially the strongest of the Big Three, was usually selected as the pattern setter for negotiations, and Ford now considered reduction provisions a relatively unimportant issue. GM sought to achieve a significant part of the reduction by accelerating the clock of early retirements through selective offers of special financial and related incentives (as described in Chapter 3) which grew out of the 1987-89 contract settlement. That settlement reflected some closely negotiated linkages between the rationing of jobs and a rationing of the company's total wage bill among three broad categories of workers: current (including younger) active workers, new (including early) retirees, and workers who had retired during previous contract periods. Management's preference had been, and remained, in favor of constructing more of the wage bill in the form of inducements to new early retirements. If successful, the inducements would reduce both the overall size and the average age of its work force (thus reducing its future wage bill), and most of the funding of those inducements would come from future rather than current revenues. The union's interests were mixed. On the one hand, since a large proportion of its shrunken membership consisted of older active workers and retired workers, there was much support in favor of enhancing the financial terms of the pension plans. On the other hand, the union's longterm future lay with younger workers, and this recommended at least some emphasis on improving current wage-rates. But the jobs of those younger workers were in the balance; no one doubted that GM was determined to reduce its total wage bill. So in the end the agreement included a substantial shift away from current wage-rate improvements and toward augmentation of the early-retirement incentives, as a trade-off with younger workers who otherwise were at high risk of losing their jobs (and many would lose their jobs regardless). Since most of these yoimger workers were not competitive in the external labor market, they were unlikely to abandon their GM employments voluntarily, even in the face of stagnant or decaying wage-rates. They had little chance of equaling, much less improving, their current wage-rates by going elsewhere. In allocating more of the wage bill to early-retirement incentive offers, management and union officials were assuming that senior workers had well-formed financial goals for their retirement years and that the offers would sufficiently match those goals, at least in some large nimiber of cases. The main obstacle was the inertia of the seniority rule: the incentive offers were targeted on workers who were last in the vulnerability queue. Moreover, the offers were potentially self-limiting, since the very act of at-

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tempting to match senior workers' financial goals for retirement signaled the likelihood of a renewable market of offers. Senior workers who appeared to be inert because uiunoved by a current offer might actually be manifesting an alertness to the prospect of a better offer later (i.e., during the next contract period). But GM had few alternatives at hand. Collateral support for the offers could be counted on—the threat of a transfer to a distant plant, the direct and implicit pressures of junior-worker sentiments, the union's interest in making room for younger members. But in the end the success of the incentive strategy would depend on the accuracy of the basic assumption about senior workers' financial goals for retirement. After all, if a senior worker's goal was to maximize his total expected income stream over his remaining lifetime, he would never retire. Did the incentive strategy succeed? Yes, in the sense that the volume of early retirements did increase. But no, in the sense that the increase was significantly smaller than management had hoped to achieve. During the period of the 1987-89 contract, just over one of every five members of the sampled population quit GM by retirement. Three-quarters of these retirements were "early"—that is, occurred under terms of either the Regular or the Special Early Retirement Plan.^ Virtually all who left via RERP did so with at least 30 years of service; most left after 30 to 35 years. Clearly the fact that benefit levels peaked at the end of Year 30 was a very important, probably decisive consideration in the decisions of many of these retirees. Whatever their understandings of actuarial accounting, the vast majority of the RERP retirees were behaving in accord with the rationality of the plan, in that they would have lost at least $5,000 in pension wealth had they delayed retirement even 1 year. Workers who retired via SERF were more heterogeneous in seniority. The structure of the plan had been designed to induce retirements before Year 30 without financial penalty, and for many of the SERP retirees that consideration made an important difference. But in addition to the carrot of erUianced financial terms, the opportunity of SERP carried the stick of a plant closure and prospects of transferral to another plant or indefinite layoff. Consequently, while many of the SERP retirees left with 24 to 28 years of service, many others left with 36 or more years. The former group were men who would almost surely not have retired when they did, had the opportunity (and circumstances) of the Special Plan not been present. The latter group were men whose retirements were "second thought" decisions: they, too, would probably not have retired when they did, but for the circumstances of the SERP opportunity—which for them, because they had previously qualified for "30 and out" provisions but had passed them up, were more importantly stick than carrot. So it is clear that the financial incentives of the early-retirement plans did have some of the effect desired by management and union officials. But

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as we saw from the analyses in preceding chapters, financial incentives were not the only important factors in the early-retirement decisions. Nor was the power of those incentives, either alone or in conjunction with others factors, sufficient to overcome a rather pronounced tendency toward continued stickiness among high-seniority workers. Recall from Chapter 3 that not only did the size of the pension benefit reach its maximum at the end of the 30th year of service; with increasing seniority beyond Year 30 pension wealth (PDAV) tended downward, as illustrated in Figures 3.2 and 3.3. The decline was not a precipitous drop, to be sure, but it was both substantial and continuous. With that in mind, consider that among workers with 30 or more years of service, 71 percent did not retire; among those with 31 or more years, 76 percent did not retire; among those with 32 or n\ore years, 77 percent did not retire; and so on. Only at Year 35 did the rate of retirement begin a gradual increase. There were indeed variations by biographical age within the high-seniority categories, but even at older ages the tendency toward stickiness was substantial. For example, among workers with at least 30 service years, 81 percent of those who were 55 did not retire; 79 percent of those who were 57 did not retire; 65 percent of those who were 60 did not retire. Finally, consider that of all workers for whom delay of retirement by only 1 year resulted in a real loss of at least $5,000 in pension wealth, 71 percent did not retire. In sum, these rates seem to indicate that a large proportion of the workers were not very responsive to the financial rationality of the pension plans, significant though the incentives were. Of course, pension income was not the sole important element of a financial assessment of optimal retirement date. Retirement entailed the cost of forgone earnings income from GM, and even at the maximum pension benefit, monthly earnings income was on average about twice the monthly pension income. Given that ratio, it might seem quite unsurprising that so many of the high-seniority workers deferred retirement. As noted in Chapters 3 and 4, however, an actuarially sensitive assessment must rest on more than a single-period comparison of earnings and pension income. It should be based instead on the projected earnings-income stream in relation to the pension-income stream (plus, though we will here ignore them, the relative payroll-tax and OASI implications)—in other words, the worker's total earnings stream, appropriately adjusted for life expectancy, inflation, and the real rate of discount. Unfortunately, we lack the necessary information on actual earnings histories (and thus projections) from which to make systematic assessments in terms of total earnings streams. But some short-term approximations are possible, and these suggest that the retirement decisions among the high-seniority workers (those who had passed Year 30) were often contrary to a calculus of financial rationality. The following example is illustrative.

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As we saw in Table 3.5, the real decline in PDAV for a worker who at age 56 with 30 years of service did not retire was 3.8 percent dxiring the next year—that is, nearly $7,500. Let's assume our 56-year-old worker, deliberating whether to elect early retirement at the end of Year 30, knew that information about the 1-year loss of asset. The question for him was then: "Can I expect a real gain in wage earnings that will offset the loss in pension wealth during the next year?" For assemblers at GM the empirical answer was "No"; but the information on which that empirical answer is based was not completely available to our worker, since future wage-rates had not yet been set. What our worker did know was that in 1990 an assembler's wage-rate was 1.8 percent lower, in real terms, than it had been 5 years earlier. From that actual knowledge he could then formulate expectations about real gains in wage-rate from 1990 forward. Had he gambled on a real gain (as roughly three-fourths of the workers with 31 or more years of service apparently did, at least in effect), he would have been proven right—^but only to the extent that the wage-rate even 3 years later (1993) was a mere 0.5 percent higher, in real terms, than the 1990 rate. In short, the real gain in wage earnings would have been short of offsetting the 3.8 percent real loss in pension wealth resulting from the 1-year delay in retirement. Granted, our worker also knew that a lump-sum addition to his hourly earnings was possible, because of the profit-sharing agreement. But again, the empirical record was far from promising: during the entire 1982-89 period the total profit-sharing payout to GM's hourly workers had been only $1,754 per worker (Katz and MacDuffie 1994). So unless the payout rate substantially improved (and it did not), he wotild still be short of offsetting the 1-year loss of $7,479 in pension wealth. Even if we assume that by working 1 extra year his wage-rate income increased by 3 percent (from, say, $40,000 to $41,200), to which was then added $1,754 from profit sharing, his extra year would have entailed a pay cut of $4,525 (i.e., 11.3 percent). While the preceding illustration is only an approximation to a complete actuarial analysis, it strongly suggests that the worker in question, and the many others who more or less shared his characteristics, should have retired promptly at the end of Year 30, zf the sole or overriding decisional criterion had been maximization of the expected stream of pension benefits.^ Some of them did retire. But many did not. Were they wittingly contradicting self-interest as defined in terms of the financial rationality of the pension plans? Did they realize that by delaying retirement they were accepting what amounted to a cut in pay? As references to intentional understanding and motivation, these questions outrun the limits of observational inference in our data. However, some speculations pertaining to the conditions of continued stickiness can be offered. The tendency toward stickiness refers in part to the inertia of habituated action—"going to the plant, punching my time card, doing what is

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necessary/' and so forth—which implies no decision to change a typical course of action. In other words, the decision not to retire (or not to retire "now") can be conceived as a lack of decision, following from the worker's perception that no available alternative action was sufficiently desirable or superior. If the worker's discount rate was comparatively high (i.e., a strong preference for ctirrent over future utility, perhaps because alternative future uses of time were only vaguely conceived), and if no obstacle precluded continuation of current activity, then there was little to disturb the inertial course. But invoking "habituated action" and "lack of decision" simply reformulates the question—especially if we assume that the auto workers had at least a general understanding of the financial-incentive structure of GM's retirement plans. Why did the incentives so often fail to disturb that inertia, even among workers who were losing substantial amounts of pension wealth? Part of the answer probably relates to the discount rate—that is, to a comparatively strong tendency of the workers to prefer current over future utility.4 Assume a choice between an annual income of, say, $35,000 from current employment earnings and an annual income of $17,000 or $18,000 from pension assets. Which option would a 56-year-old auto worker with 30 years of service be likely to choose, even if he knew that postponing retirement to the end of his 31st year would erode the amount of pension wealth available for future consumption by $7,500? Most of the auto workers chose $1 with work over 50 cents without work. Granted, delaying departure 1 year was tantamount to taking a significant cut in pay, but the realization of that cut would be "in the long run" (i.e., in terms of deferred compensation). By contrast, taking retirement now meant an immediate income reduction of roughly 50 percent. For many senior workers the immediacy of that latter reduction was an evitableness to be postponed as long as possible. Having survived the job for 30 years, they had developed various tactics and devices for making life in the plant bearable. In effect, they were saying, "I can always retire; but once I do, I'll never be able to find another job that pays as well or is as secure as this one. Since I'm not ready to live on $18,000 a year, I would need to find another job; but if I have to work anyway, I'd rather work in my present job." There is probably another and larger or more general part to the answer, however, which has to do with characteristics of organizational culture and sets in relief the auto workers' responses relative to the higher rate of responses reported by Stock and Wise (1990, p. 216) in their study of salesmen employed by a major "high-tech" corporation.^ In the occupational world of the auto workers many interrelated dimensions of organizational culture emphasize values of collective action which tend to forestall a calculus of individual optimizing decisions and behaviors. The

Inducing Early Retirement: Some Conclusions in Perspective

231

assembly line itself—the spatial and temporal orgaruzational focus of work—is and depends on a complex chain of closely regulated collective actions. Attachment to the union is a continual reminder of collective action at a number of levels. The auto workers shared memories of a history of labor struggle and "hard-won gains." There was much in that history to remind them of their vulnerability as individuals, and the rhetorical structure of those memories—as indeed of a "union consciousness" in general— stimulated tendencies toward risk aversion at the individual level. Collective action was first and foremost protection against loss (job loss, lost wages, and so forth), and it had proven to be virtually the only mear\s to gains in wage-rates and benefits, in job security, and in workplace conditions. By the same token, however, loyalty to the union implied a pronounced bias toward loyalty to the firm as well. A core feature of the union's side of the "labor accord" had been a commitment to supply a reliable, regulated work force. The UAW could boast of considerable success on that score, at the same time that it had won and maintained high wage-rates for semiskilled workers, relative to alternative employment opportunities. Likewise, the tradition of pattern bargaining and the model contract were directly instruments of collective action which also strongly restricted individual opportunities of lateral or between-firm mobility. As Chinoy (1955, pp. 64-66,124-125) observed in his study of an earlier generation of auto workers, this collective-action orientation of the organizational culture emphasizes security—"a cushion to fall back on" when times become tough—rather than individual advancement. Because of the repetitive nature of the worker's activity, the rigid job classification system, the narrow spread of wage-rates within probable lines of promotion, and the repetitive nature of the contract-negotiative period, individual goals tend to be static. An orientation grown from memories and anticipations of the inevitable trough of layoffs, followed by an uncertain wait until recall, levels little room for a forward-looking strategy of goal-setting. This is the structure of meaning within which the workers' decisional rationalities must be parsed. To be sure, circumstances of orgaruzational culture had been rapidly changing for auto workers during the 1980s, and most of these changes carried strong implications for that structure of meaning. But it should not be surprising that many senior workers, even those whose service clocks were still ticking after 30 or 35 years, preferred to conserve traditional orientations of meaning in the face of so much change and uncertainty. Not only were they resistant to appeals to share some of the risk of job loss among junior workers; the general climate of increased uncertainty also made them more resistant to accepting the risks involved in a decision to take early retirement (see Anderson, Burkhauser, and Quinn 1986).

232

Chapter 8

Disappointed at the results of the incentive programs during the 1987-89 contract, GM and the UAW agreed at the next round of bargaining to commit more of the wage bill to early-retirement incentives. The minimum-wage requirement was set uniformly at age 50. The "30 and out" monthly benefit was raised in yearly increments during each year of the new contract period, reaching $1,800 in 1993. And four Special Early windows were opened during the contract period. In general, the response to these "window offers" continued to be disappointing, with acceptance rates hovering around 33 percent. But the last of the four windows, which closed in May 1993, was an exception, largely because of the addition of a new inducement. Recall that under terms of the Special Early Retirement Plan (SERF) the actuarial reduction factor associated with retirements prior to age 62 under the terms of the Regular Early Retirement Plan (RERP) did not apply. This meant that workers with fewer than 30 service years who were able to retire via SERP did so at considerable financial advantage, relative to their benefit entitlements under RERP. But it also meant that the size of the relative advantage was an inverse function of age at retirement up to age 62, at which point the advantage disappeared. In the fourth window the standard package of special incentives was enhanced for workers aged 62 or older: they were promised a $10,000 voucher toward the purchase of a new GM vehicle, plus $3,000 in cash once the voucher was used. The offer of early retirement via SERP during this fourth window was accepted by 16,500 workers—almost twice the number expected. Nearly onequarter of these retirees were 62 or older. Analysts estimated that, despite the additional cost of the vouchers and cash bonuses, GM would realize a net savings of $15,000 per year per each of the 16,500 retirees.^

THE CHANGING PARAMETERS OF PRIVATE PENSIONS GM's use of early-retirement pension plans as an instrument for shaping employee behaviors with regard to loyalty and exit choices in order to manage intrafirm problems of unemployment is an example of a policy which, when pursued under certain conditions within an individual firm, can achieve desired effects for that firm, but which is usually counterproductive, even perversely productive, when attempted as general economic policy. Accelerating the flow of early retirements might reduce the unemployment rate in the short run. But as the unemployment rate declines, the rate of inflation tends to rise, which is then met by a tightening of fiscal or monetary policy, in consequence of which the unemployment rate returns to its previous level, and in the meantime output and total income will be falling (see Layard, Nickell, and Jackman 1991, pp. 502-507). When an individual firm uses the policy, as GM did, to deal with unemployment prob-

Inducing Early Retirement: Some Conclusions in Perspective

233

lems in its internal labor market (redistributing risks of job loss), the potential of such perverse effects is both small (since jobs are being cut) and externalized to the larger market. Even so, however, the firm can reap other sorts of perverse effects which cannot be externalized. An example evidenced in the analyses reported in Chapters 4 and 5 concerns the composition of the accelerated flow of early retirements via the Special Early Retirement Plan. Recall that the bulk of GM's excess labor supply consisted of semiskilled (i.e., "production") workers, and it was there, rather than among the skilled workers (in whom the firm had greater investments), that management hoped to see the bulk of the positive response to its special offers. But in fact a disproportionately large number of the positive responses came from skilled workers. A simple comparison tells the story: whereas fewer than one-fourth of the RERP retirees who would have lost at least $5,000 in pension wealth had they delayed retirement 1 extra year were skilled workers, the corresponding proportion among the SERP counterparts was nearly one-half. Almost all of these latter retirements are interpretable as "second thought" decisions, in the sense that retirement could have been taken via the "30 and out" provisions of RERP during the previous year (or earlier) but was not. The difference which led to the reconsideration was probably not financial so much as it was the circumstance of the SERP offer—the worker's plant was scheduled for closure—combined with the fact that by retiring under the terms of SERP the worker was officially free to pursue postretirement employment without any reduction of his lifetime or temporary GM pension benefit. Unlike production workers, skilled workers had reasonably good "second best" job prospects in the external labor market. From management's point of view, the special-incentive programs, though certainly still useful to the task of shedding workers, were a rather blunt instrument in terms of managing the composition of exits. The programs had lost much of the flexibility which previously had enabled management to target the incentive offers with greater particularity—that is, to make a special offer to a very specific group of workers, or even to specific individuals, without extending the liberalized early-retirement provisions to a broader category of workers. Partly because of abuses of that flexibility (e.g., targeting "troublemakers"), external regulations had increasingly redrawn and legalized the grid within which eligibility rules must be defined. For example, the Employee Retirement Income Security Act (ERISA) of 1974 initiated a number of regulations which were especially important for defined-benefit plans—^minimum vesting standards, more stringent funding requirements, pension-insurance fees, improved reporting of benefits and finances, and restrictions on the terms of eligibility for any special-incentive program (Ippolito 1986b). The 1978 amendments to the Age Discrimination in Employment Act (ADEA), reflecting concerns that em-

234

Chapters

ployers had been using early-retirement programs to induce exits among workers perceived as "less able/' made it more difficult for employers to penalize workers who choose not to retire at "normal" age. While retaining age as a legitimate factor in the incentive structure of a pension plan, the legislation sought to prevent employers from using the age structuring of benefits as a subterfuge for discriminations otherwise prohibited by the ADEA7 These and related restrictions were reinforced by amendments to the tax code—an especially effective enforcement mechanism, since firms must comply with Internal Revenue Service regulations in order to maintain tax exemption of their pension funds (Clark and McDermed 1991). The new regulatory environment has made defined-benefit (DB) plans more expensive in administrative costs and less flexible as a means of managing the composition of "early" exits among senior workers. These factors have no doubt contributed to the declining popularity of DB plans among employers. But on the other side of the coin, the same regulations have made workers' pension rights more secure by reducing employers' latitude in using early-retirement plans, and especially special-incentive programs, in individually arbitrary ways. The aim has been to make the individual worker's own decisional calculus the primary factor, or at least the primary formal factor, in the timing of retirement—though of course none of the regulations can make any "voluntarism" immune to the historical substantive contingencies of finite options, imperfect information, and limited foresight. This impetus toward greater individualization of decisional calculus is also manifest in the growing popularity of defined-contribution (DC) pension plans. Not that firms are necessarily champions of individualization. But as (DB) plans have grown more expensive to administer and less flexible as managerial instruments, firms initiating pension plans have increasingly opted to externalize the costs and risks of decision-making onto each individual employee. Since DC plans contain no special provisions for "early" retirement—that is, aside from the amount of accumulated wealth they are indifferent to retirement age—the increased use of DC plans will probably retard historical tendencies toward younger ages at retirement. Recent statistics indicate that the long-term trend in early-retirement rates halted during the mid-1980s. No doubt the severe recession earlier in the decade had something to do with that. But increased adoptions of DC plans, combined with the ongoing revision of "work disincentives" in the public pension system, will probably reinforce the break in the trend, and perhaps even induce a sustained reversal. A niunber of simulation studies have suggested that reductions in work disincentives such as those legislated in the 1983 amendments to Social Security have a very modest impact on retirement age (see, e.g., Bxirtless and Moffitt 1984; Fields and Mitchell 1984a; Stock and Wise 1990).

Inducing Early Retirement: Some Conclusions in Perspective

235

However, because the simulation models are strongly ahistorical in their ceteris paribus conditions, the results are of very limited application. Behavioral responses to the sorts of changes being simulated in those models tend to occur gradually and indirectly through socialization processes which are partly a fimction of broader organizational rationalities. There is little reason to think that the simulated changes, if actual, would leave existing organizational rationalities otherwise unaltered. On the other hand. Stock and Wise (1990) also simulated the impact of retarding the early-retirement eligibility age (from 55 to 60) in a firm's DB plan, and the results indicated, not surprisingly, a much more substantial effect on employee behavior. Without the possibility of pension income at ages younger than 60, many fewer workers elect retirement at those ages. This is consistent with the argument that DB plans were the main driving force in the long-term trend toward ever younger ages at retirement in the United States. It also suggests, as Stock and Wise (1990, p. 222) pointed out, that the consequences of reducing the work disincentives of the public pension system will be partly contingent of the responses of firms that continue to rely on DB plans as a means of inducing exits among older employees. "Changes in Social Security provisions that would otherwise encourage workers to continue working can easily be offset by countervailing changes in the provisions of the firm's pension plan. Firm responses, like delaying the Social Security offset to correspond to a later Social Security retirement age, may simply be a logical revision of current firm plan provisions." If the composition of the private-plan market continues to shift toward DC plans, and especially toward forms such as the 401 (k), which maximize voluntarism of employee participation (see, e.g.. Even and Macpherson 1994), the effect could well be a substantial reduction in rates of early retirement. The increased individualization and voluntarism of DC plans—in particular the 401 (k) version, which has grown in popularity since its introduction in the late 1970s—implies an increased hazard of insufficient discipline in savings behavior. Whereas asset accrual in a DB plan is most sensitive to length of tenure at pension activation (e.g., approaching the 30th year of service), asset accrual in a DC plan, much as in an ordinary savings account, is highly sensitive to the rate of contributions during the early years of tenure as well as to the eventual length of tenure. Younger workers may be tempted to postpone the initiation of contributions and/or to minimize the rate of contributions during their early years of participation. In consequence, they could find themselves with insufficient DC assets to fimd retirement prior to Social Security eligibility. Rates of early retirement in those industries in which adoptions of DC plans have been greatest (the service and newer manufacturing sectors, where the birth rate of firms is highest) would then be significantly lower than in industries with DB plans. Relatively few firms are newly adopting DB plans. But unionized

236

Chapters

firms in the older manufacturing industries can be expected to maintain their existing DB plans—despite concerns about flexibility and administrative costs (both of which may be legislatively addressed through proposed revisions of ERISA)—since the efficacy of DB incentive structures as a means of regulating exit behaviors among senior workers will continue to appeal to management in those firms. The current generation of senior auto workers were among the first blue-collar workers to gain the option of ending a career job by voluntary retirement at age 55. They may not be the last to have that option. But if not, any of their successors who do retire with full benefits at age 55 will almost surely be acting against the trend, not at its leading edge.

NOTES 1. GM was large enough to appropriate innovative technologies of the production function. But many of the innovations simply swamped the adaptive capacity of existing behavioral-organizational regimes, partly because management often underestimated the complex requirements of retraining workers (including supervisory employees) in behavioral-organizational skills commensurate with the new machine system of robotics (see Hayes and Ramchandran 1988). Some of GM's experiments were relatively successful—for instance, a completely automated axle plant (Saginaw, Michigan)—^but others had disastrous results. 2. This does not include the small number who left under provisions of the Disability Retirement Plan. 3. A point of empirical comparison will be helpful. Stock and Wise (1990) estimated a financial-rationality model of retirement decisions using data on private-pension entitlements. Social Security entitlements, and projected earnings income for a sample of 1,500 salemen employed by a major "high-tech" corporation. The men were 50 years old or older on January 1,1980. Retirement decisions were recorded for the succeeding 3-year interval. The incentive structure of the corporation's early-retirement plan was very much like the incentive structure of GM's Regular Early Retirement Plan. Normal retirement age was 65; early retirement age was 55; vestment occurred at the end of 10 years of service. The actuarial reduction factor for early retirement was much less than fair (i.e., the plan was designed to encourage early exits), just as with GM's plans. Early retirement with 30 years of service brought full normal-retirement benefits. The results Stock and Wise obtained for their model and the results we obtained in Chapter 4 can be only approximately compared because of differences between the models. Theirs contains only the financial variables noted above, whereas ours contains a larger number of variables. More importantly, their model utilizes information on streams of income—earnings and Social Security as well as private pension—in a dynamic modeling approach that does not assume workers know future information (e.g., wage rates) with certainty. Our model is much simpler in form and utilizes income-stream information only for

Inducing Early Retirement: Some Conclusions in Perspective

237

the private pension. However, the one important comparison for present purposes can be made with sufficient confidence despite those differences. As estimated by Stock and Wise's model, the financial-rationality criterion of optimal retirement dates fit the distribution of actual retirement dates with very high accuracy. Predicted rates of early retirement by age were well within the 95 percent confidence interval around the sample of actual population rates (with the exception of a slight departure at age 62). In short, the salesmen chose retirement dates which, with very few exceptions, maximized assets over probable remaining lifetimes. By contrast, while our informational base for the auto workers does not allow an equivalent assessment in terms of Stock and Wise's model, the results of our analyses point to a different conclusion: it is highly unlikely that the auto workers were nearly so sensitive to the financial rationality of GM's very similar early retirement plans. 4. Indeed, by adopting the standard assumption of a real discount rate of .0275, we might have been underestimating the average discount rate among the auto workers. In other words, the average worth of a future (pension-income) dollar, relative to a current (earnings-income) dollar, could have been lower than we assumed. 5. Because the principals of this research project have been careful to treat the corporation anonymously, we will do likewise. Suffice to say, it has been a leading player in the "information-technology revolution." 6. Even so, GM's pension costs were escalating rapidly. A firm that has an overfunded pension plan can cover enhancements to individual pension benefits by the surplus funding. CM was not one of those firms. Its pension plans were already seriously underfunded, and with each additional year of pension payments (i.e., payments to the growing volume of new retirees, plus improved benefits paid to previous retirees) the company's pension liability grew by 10 to 15 percent. The accelerated flow of retirements generated ever greater liability. In 1990 GM's roster included 280,000 active workers and 175,000 retirees, or 1.6 active workers for each retiree. A year later that ratio was reduced almost to parity (258,000 active workers and 254,000 retired workers). GM's pension-benefit payments to both hourly and salaried retirees now added $967 to the cost of each vehicle built in the United States. (The comparable figure at Ford—which counted 102,800 active and 83,300 retired hourly workers—was $494.) By 1992 GM's pension funds held assets of $42.8 billion, but they were underfunded by an estimated $14 billion (The Economist, 18 December 1993, p. 69). 7. The 1986 Omnibus Budget Reconciliation Act also addressed the use of penalty provisions in private plans as a means of discouraging delayed retirement. The legislation requires employers to continue pension credits and accruals for work after age 65—though with one major exemption: workers who have reached the maximum number of years of tenure that are counted in the benefit calculation formula (Quinn, Burkhauser, and Myers 1990, p. 133).

Appendix

The population consisted of all male production and skilled-trades workers whose birth dates were prior to October 1937 and who were actively employed in the GM plants as of October 1987 ("actively employed" includes workers who were on layoff, or in a JOBS bank, with recall rights). While the initial research design called for an oversampling of female members of the age-specific population, there simply proved to be too few women of the stipulated age range to allow useful gender comparisons. Thus, the study is of male auto workers only. The population was stratified first by labor-force status and then, among the retired workers, by retirement plan. The nonretired stratum consisted of those population members who were still actively employed in the GM plants at the end of the 1987-89 contract period. This stratum contained approximately 67,000 workers in 1989 (i.e., of the approximately 310,000 actively employed workers in 1989, about 67,000 were aged 50 or older). The retired strata of the population consisted of those population members who elected retirement under one of the four retirement plans during the contract period (i.e., during 1987,1988, or 1989). The stratum of workers who retired under the Normal Retirement Plan and the stratum of workers who retired under the Disability Retirement Plan are excluded. These strata accounted for approximately 24 percent of all retirements in the defined population during the contract period. The two remaining strata—workers who retired under the Regular Early Retirement Plan (RERP), a total of 7,383 retirees, and workers who retired under the Special Early Retirement Plan (SERP), a total of 7,135 retirees—comprise, in conjunction with the nonretired workers, the focus of interest in this study. Thus, the sampled population, defined by those three strata, contained approximately 81,518 workers aged 50 or older in 1987, of whom 14,518, or approximately 17.8 percent, were early retirees. It should be noted that the population was defined retrospectively from 1989 personnel records. The chief implication of that procedure is that 239

240

Appendix

some imknown number of workers who fit the definition of the population in October 1987 were no longer members of the population at the end of the contract period (i.e., at the date of observation), either because of mortality or because of other termination of employment (including "quits" under the Voluntary Termination of Employment Program, which involved a onetime lump-sum buyout of the worker's contractual entitlements, and was rarely used by senior workers). In addition, of course, the sampled population was comprised of "survivors" in the sense that they, unlike an unknown number of erstwhile GM co-workers from the same birth cohorts, persisted in their GM employments long enough to achieve eligibility for early retirement. Neither sort of survivorship was random. Sampling frames and initial screens were constructed by the Social Security Department of the United Auto Workers. The samples were generated within strata by random sampling of Social Security numbers, using unequal sampling ratios. Sample members were identified by name, mailing address, telephone number (in most cases; the exceptions occurred in the rosters of retired workers), age, years of credited service, job classification, labor-force status, and, if retired, the early-retirement plan. Initial contact with the individual sample members was by a mailed packet of information which included a letter explaining the nature of the study and a return postcard requesting current telephone number. Accurate telephone numbers could not be obtained for 14 percent of the retired workers. Relative to sampling screens, completed-interview response rates ranged from 11 to 88 percent, with completed-interview sample sizes (unweighted) of 616 nonretired workers, 635 RERP retirees, and 513 SERF retirees, or a total of 1,764 cases. Given the sample weights (9.355 for nonretired workers, 1.196 for SERF retirees, and 1.000 for RERP retirees), the combined samples total to 7,011 weighted cases. The weighted samples were used in all relevant analyses (mostly conducted through LIMDEP 6.0). Note, however, that the weighting procedures in the analyses were internal, did not inflate the total N (i.e., used the unweighted N), and thus yielded correct standard errors. Because of missing data, the effective size of the combined samples for all analyses involving the variable. Pension Wealth (designated PDAV in the tables), is reduced to 1,721 unweighted cases. All of the 43 excluded cases were retirees, 39 of them SERP retirees. An analysis of the 43 cases, relative to all other retirees, indicated no significant selectivity by age, ethnicity, service years, education, skill level, marital status, household income, health capability, or exposure to plant closings or to recent layoffs. Observations were of two sorts. First, information on several variables—^birth date, years of service, job classification, wage rate, year of retirement and retirement plan (if retired)—was extracted from personnel

Appendix

241

records. Second, information on all remaining variables was obtained through telephone interviews, which were conducted between November 1989 and January 1990 by trained interviewers in the Survey Research Center, Florida State University. Distributional statistics for some basic demographic variables are reported in Table A.l.

242

Appendix

Table A.l. Distributional Statistics for Selected Variables, by Labor-Force Status Retired Regular

Special

Not retired

Age (to nearest year)

56.8 (5.4)

58.8 (2.3)

57.0 (3.6)

Service years

32.3 (4.3)

29.1 (8.2)

26.2 (8.9)

16.1 27.9 42.7 4.6 7.6 1.1 100.0

14.6 25.3 39.4 7.0 10.9 2.7 99.9

9.6 19.8 50.2 5.8 12.8 1.8 100.0

0.8 88.3 2.0 6.3 2.5 99.9

1.6 87.7 0.6 7.0 3.1 100.0

1.1 88.1 1.3 5.0 4.4 99.9

Household size

2.4 (1.0)

2.4 (1.0)

2.3 (0.9)

Percent with child in household

22.5

17.7

16.7

5.7 4.3 90.0 100.0

8.2 2.9 88.9 100.0

14.2 3.2 82.6 100.0

41.7 (13.3)

39.2 (13.6)

49.4 (13.5)

Education 8th grade or less 9th to 12th grade High school diploma Diploma and technical Some college College graduate Total Marital Never married Married Separated Divorced Widowed Total

Ethnicity African American Hispanic American Other ("white") Total Household income (000s) Wage rate N (tmweighted)

14.84 (1.74) 635

14.88 (2.09) 513

16.19 (1.71) 616

Note: Household size, percent with child in household, household income, and wage rate are preretirement for the retirees; current (i.e., 1989) for the n(Htfetired workers. Distributional values are means (with standard deviations in parentheses) or percentage distributions.

243

Appendix Table A.2. Retirement via tlie Special Plan, contingent on Forgone RERP Opportunities: Probit Coefficients for a Selection Model Y = Not RERP

Y = Retired via SERP

Constant

-.943 (3.491)

PDAV (000s)

-.028(.005)

-24.479(7.307) .155(.017)

Age

-.025 (.058)

.441(.120)

Age 62+

-.980« (.217)

-.770 (.468)

Service years

.169(.028)

-.612(.077)

Thirty plus

7.676 (4.023)

-63.060(8.821)

Age X thirty plus

-.158^ (.067)

1.001(.144)

Hourly wage rate

.228(.037)

-.282(.068)

Skilled worker

-.491(.153)

1.140(.285)

Overtime

-.470(.125)

.332 (.255)

.020" (.005)

-.034' (.011)

Married

-.442* (.193)

1.648(.413)

Keep up

.290 (.180)

-.331 (.350)

Education: 12 plus years

.323' (.129)

-.355 (.261)

African American

.447* (.222)

-.652 (.428)

Hispanic American

-.103 (.325)

.173 (.554)

Laid off

1.000(.181)

-1.161(.368)

Plant closed

-.179 (.181)

.823' (.296)

Household income (000s)

Lambda

-.772 (.809)

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Appendix

Table A.2. (continued) Y = Not RERP -Log likelihood Predicted(%) Y= 1 Y=0 Overall

283 95.2 43.9 76.4

86 78.3 99.7 90.4 .47

.25

OLS adjusted R^ N (unweighted)

Y = Retired via SERF

1,721

1,090

•p<.001 *p < .05 (two-taUed tests) ^p < .01 Note: The first column reports coefficients for the equation selecting weighted cases who did not retire via RERP. The inverse Nfills ratio (lambda) distribution generated from this selection rule was then passed to the second equation, which predicts ''retirement via SERF' within the selected population.

Table A.3. Age at Retirement: OLS Coefficients, with Control for Type of Retirement Plan (1)

(2)

(3)

(4)

58.860(.339)

58.772(.333)

58.180(.366)

58.671(.379)

PDAV (000s)

-.097(.001)

-.098(.001)

-.097(.001)

-.097(.001)

Service years

.391' (.007)

.414(.008)

.427(.008)

.411(.009)

Thirty plus

2.056* (.128)

1.519(.138)

1.586(.138)

1.515(.139)

Hourly wage rate

.144(.019)

.163(.019)

.157(.019)

.164(.019)

Skilled worker

-.339(.077)

-.342(.076)

-.344(.075)

-.368(.076)

Overtime

-.208* (.063)

-.260(.063)

-.260(.062)

-.265(.062)

.011(.003)

.012(.003)

.012(.003)

.013(.003)

Married

-.918(.096)

-.937(.094)

-.948(.094)

-.964(.094)

Keep Up

.049 (.082)

.074 (.081)

.061 (.081)

.061 (.081)

Education: 12 plus years

.001 (.063)

.053 (.062)

.056 (.062)

.054 (.062)

African American

.189 (.121)

.213 (.118)

.207 (.117)

.240^ (.118)

-.086 (.160)

-.078 (.158)

-.079 (.157)

-.084 (.157)

.136 (.094)

.262* (.093)

.255* (.093)

.292* (.094)

-.008 (.082)

.022 (.081)

.030 (.081)

.019 (.081)

SERF

—

-.661(.069)

.306 (.276)

-.431 (.327)

SERF X PDAV (000s)

—

—

-.005(.001)

-.009(.002)

SERF X service years

—

—

—

-.042^ (.014)

-.806" (.053)

-.939(.052)

-.924(.052)

.yoo (.054)

.94

.94

.94

.94

Constant

Household income (000s)

Hispanic American Laid off Plant closed

Lambda Adjusted R^ -p < .001 *p < .01 'p + .05 (two-tailed tests)

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Appendix

Table A.4. Probit Regressions of Y = Retired (vs. Not) for an Abbreviated Version of the Basic Model: Comparing Barfield-Morgan Data with 1989 Survey Barheld -Morgan

1989 Survey

1

2

1

2

-1.055(.132)

-23.183(2.602)

-2.510(.129)

-2.012(.793)

Replacement rate

1.940" (.243)

1.871(.269)

3.707(.270)

3.276(.292)

Wage rate

—

-.331* (.100)

—

-.121(.025)

Household income (000s)

—

.001 (.002)

—

-.010(.003)

Married

—

.192 (.162)

—

.243 (.139)

Keep up

—

-1.035(.128)

—

-.356* (.129)

Age

—

.375(.042)

—

.030* (.012)

Education: 12+ years

—

.118 (.128)

—

-.135 (.092)

Nonwhite

—

-AOV (.174)

—

-.554(.137)

Constant

-Log likelihood Predicted (%) Retired Not Overall OLS adjusted R^ -p < .001 "p < .01 "p < .05

521 51.0 68.1 60.0

.07

429 69.1 76.4 72.9

.26

586 6.2 98.8 39.8

.14

541 24.1 96.2 50.4

.19

247

Appendix

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Appendix

Table A.6. Expanded Models, including Attitudinal Variables: Multinomial Logit Coefficients (Yo = 1 if Not Retired; Yi = 1 if Retired via RERP; Yj = 1 if Retired via SERF) Yi

Y2

t-test: Y,-Y2

-5.535 (10.820)

-41.679(10.580)

2.86

.176(.019) .174 (.181)

.252(.021) .724(.175)

-4.68

1.219* (.522) -.812" (.087)

-1.566^ (.597)

4.83

-.992(.093)

2.25

-80.721(13.940) 1.358(.228) -.613(.088) 1.837(.380)

-111.190(12.970) 1.764(.211) -.501(.091) 2.295(.414)

2.45

Overtime

1.13?(.292)

.604 (.342)

1.59

Household income (000s)

-.050(.012)

-.055(.014)

0.37

Married

2.309(.481)

2.798(.597)

-0.84

-.161 (.404) -1.032^ (.317)

.046 (.482) -.730* (.363)

-0.43

-.872 (.534)

-1.021 (.641)

0.16

.315 (.734) -2.520(.437)

.570 (.897) -1.896(.446)

-0.21

.889* (.410)

1,399(.415)

-1.26

Constant PDAV (000s) Age Age 62 plus Service years Thirty plus Age X thirty plus Hourly wage rate Skilled worker

Keep up Education: 12 plus years African American Hispanic Laid off Plant closed

-2.63

-1.98 -1.27 -1.35

-0.91

-1.20

Appendix

251

Table A. 6. (continued) t'test: Yi

Y2

Y1-Y2

CHscussed with uiuon

.765* (313)

l.llZ (.344)

-1.01

Discussed with management

1.234(.357)

1.256(.384)

-0.17

Help young

.354 (.286)

.212 (.331)

0.52

No age limit

-.054 (.337)

.039 (.386)

-0.36

Saved job

.594" (.287)

.579 (.340)

-0.06

Make room

.746* (.298)

.413 (.358)

0,91

-Log likelihood Predicted (%) RERP SERF Not retired Overall -p < .001 *p < .05 (two-tailed tests) ^p < .01

348 69.4 69.2 98.1 79.6

252

Appendix

Table A.7. Regression Coefficients for Selection Model Predicting Age at Retirement among Retired Workers Y = Retired Constant

Y = Age at retirement

-6.797 (3.283)

59.171 (.345)

PDAV (000s)

.112(.008)

-.097(.001)

Age

.147* (.054)

—

Service years Thirty plus

-.454(.037)

.415(.008)

-54.743(5.628)

1.460(.139)

Age X thirty plus

.885(.092)

Hourly wage rate

-.269* (.037)

.146(.018)

Skilled worker

.954(.173)

-.311(.075)

Overtime

.493(.137)

-.246" (.062)

H'hold income (000s)

-.030(.006)

.010(.003)

Married

1.283(.223)

-.958(.094)

Keep up

-.116 (.198)

.011 (.080)

Education: 12 plus years

-.446* (.147)

.048 (.062)

African American

-.520(.240)

.137 (.118)

Hispanic American

.081 (.351)

-.131 (.159)

-1.116(.175)

.220^ (.093)

Plant closed

.496* (.185)

.045 (.080)

Discussed witi\ union

.474(.143)

-.111 (.064)

Laid off

—

Appendix

253

Table A.7. (continued) Y = Retired

Y = Age at retirement

EHscussed with management

.65?" (.169)

-.184'' (.067)

Help young

.146 (.134)

.082 (.065)

No age limit

.051 (.157)

-.059 (.070)

Saved job

.289^ (.134)

.054 (.065)

Make room

.261 (.140)

-.155' (.067)

SERF

—

-.621" (.070)

Lambda

—

-.913(.054)

-Log likelihood

241

—

Predicted (%) Retired Not Overall OLS adjusted R^ 'p < .001 *p < .01 'p < .05 (two-tailed tests)

80.7 97.9 86.9 .52

— — — .94

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Index

Age actuarial adjustment of benefit rates, 55, 56, 64-66,67 politics of. See Generational equity at retirement, 7,23,35,87,94,113,121, 123,125,165 predicting, 112-115,123,190 n.l2 retirement decision and, 96,99-100,119-120, 162n.l6,194,198 Age Discrimination in Employment Act (ADEA), 50,87, 233 Attitudes toward management, 168,185 as predictors of behavior, 170-171,179,196 about retirement, 192-193 about seniority, 166-168 union politics and, 185-188 Auto industry crisis in, 5-6, 36-37, 222 labor relations in, 4, 31-34,41-44 pattern bargaining in, 33,43,231 recovery of, 40-41 studies of, 6,9-10,33-34,231 U.S. economy and, 3,5-6,11,36,221,222 wage determination in, 32,33-34 Bargaining concessionary 32, 37,40,185-186, 224-225 enforcement mechanisms, 31-32, 39 model contracts and, 31-34, 231 pattern, 33,39,43, 231 pension rights, 28, 34-35 Contract GM-UAW. See under Pension plans, private model See under Bargairung implicit, 2,4,50

Contract (cont.) spot-market vs. tenure, 50-51, 52, 225 Chrysler Corporation, 37,42 Education retirement decision and, 110 Seefl/soSkill Employee loyalty. See Worker attachment Employee Retirement Income Security Act (ERISA), 132 n.36,233,236 Employer-provided pensions. See Pension plans, private Employment career, 2, 6,14,221 internal labor markets and, 1-3, 33-34, 49-50, 222 post-retirement, 90,110,233 systems of, 1-4,18 n.l trends in auto industry, 37,46 n.lO Ethnicity/race post-retirement employment and, 110-111 retirement decision and, 110,161 n.5 Ford, Heru-y, 33, 46 n.8 Fordism, 32,163,231 Ford Motor Company 3,34,37,42,43,185, 225-226 General Motors, 3-4,10,31,33, 34 exporting jobs, 39-40 layoffs, 8,37,41, 42,43 organizational problems, 42-44, 225-227 pension trust fund, 44, 237 n.6 plant closings, 7-8,42-43 profit sharing, 185, 229 retirement plans of. See under Pension plans, private 269

270 Generational equity auto workers' attitudes about, 171-173, 174-177 auto workers write about, 166-168 distributing risk and, 12,165,166,169 issues of, 8,12,165,170-171,188 retirement decision and, 179-184 status effects and, 176-179,184 Gompers, Samuel, 3 Guaranteed Income Stream (GIS) program, 40,168 Health demands of the job and, 14,108 disability, 108 retirement decision and, 109-110,115,191, 211 stress from plant closings, 168-169 Income guaranteed, 5,40 replacement rate and, 60-61,93,124,126, 139, 228, 230 retirement decision and, 24,106-107 Information cascade effects, 125 retirement decision and, 127 n.l, 142-143, 149-150,152,158,159-160 search behavior, 135-137,138-140 Job bank. See Job Opportunity Bank Security (JOBS) program Job classification system, 32, 33-34, 39,43 Job Opportunity Bank Security (JOBS) program, 40, 42,168 Job security, 4-7,40, 43,149,169 Labor markets internal, 1-3, 40, 44, 49-50, 222 external, 1, 2, 21,40,119,140,167, 226, 233 Labor unions attitudes toward, 28, 31,163,186 business unionism, 3,18 n.3,28 growth of, 14,31 internal politics in, 38,185-188 job-control unionism, 2-3,46 n.ll structural conflict and, 32,185-186 successes of, 7, 31, 37-38, 39,46 n.l4, 231 See also United Auto Workers Layoffs, 2, 5, 7, 37,168-169 just-in-time scheduling and, 223-225 retirement decision and, 111-112 seniority and, 33-34,131 n.27,222, 224

Index Maquiladora plants, 39 Marital status retirement decision and, 107 National Labor Relations Act (NLRA), 31, 32,38, 46 n.l3,185 National Labor Relations Board (NLRB), 31-32, 39 New United Motor Manufacturing Inc. (NUMMI), 42 Organizational technologies, 1, 3-4, 6, 27, 39 just-in-time vs. just-in-case scheduling, 223-225 Outsourcing, 39-40, 41, 42, 223 Overtime just-in-time scheduling and, 224-225 management strategy and, 40-41 retirement decision and, 104,120, 206 Pension plans private benefit rates, 54,55-59, 85 n.7 defined benefit plans, 24-25, 34, 49, 234-236 defined contribution plans, 25, 234-235 early developments of, 25-29 early retirement and, 7, 34-35, 44-45, 52 employer motivation for, 26, 27, 49-50, 234 financial incentives of, 8, 59-73, 98,193, 227 GM-UAW 1987-89 contract, 8-9,13 disability plan, 53, 85 n.5 normal plan, 53, 54-57 regular early plan, 13, 53-54, 57-58, 197, 232 special early plan, 13, 44, 53-54, 58-59,168-169,197, 226-227, 232, 233 replacement rates in, 60-61, 230 tax advantages of, to employer, 30 union position on, 26, 34 vesting in, 25 workers' knowledge of, 124,125,127 n.l, 133 n.38,139 public early developments of, 23, 24, 29 relative to private plans, 23-24, 29-30, 34,127 n.2,165, 235 See also Social Security Act

Index Pension wealth accrual of, 50-52, 70-73,95 backloading and, 70, 80,197 life expectancy and, 68, 69 present discounted value of, 69, 75, 78-80, 85 n.9,124 retirement decision and, 52,59, 93-100, 114-115,117-119,120-121,211, 218 n.8, 228, 229 single-period vs. multi-period models of, 61,93-94 Plant closures layoffs and, 7-8, 42-43,168 local community and, 10-11,164-165, 178-179 retirement decision and, 52,111-112,120, 178,201 studies of, 10-11,176 Profit sharing, 44,185, 229 Quality of Work Life (QWL) programs, 6, 38-39,164,223 union politics and, 187-188 Rationality asset maximization and, 60-61, 69-70, 229 of behavior, 16-17,21,100,124-126, 224, 227,229-232 deferred gratification and, 230 habit and, 15-16,126,136,138, 229-230 information search and, 135-136, 138139 option constraints and, 17, 93,198-199 organizational, 16,125, 224 of plan, 50-52, 99,120,125, 225-229 theories of, 15-17 Retirement age at. See under Age anticipation of, 8, 52,104,178,192,194, 197,215 delaying, cost of, 80-84, 95,126,144 discount rate and, 27, 86 n.l3, 93,230 early, trends in, 22-24, 87, 234 mandatory, 28-29,45 n.7, 50-51,85 n.6, 87, 192-193 pension plans. See under Pensions, private politics of age and. See Generational equity reasons for, 21, 59,88-90,126,169, 171-172,191,199 satisfaction with. See under Satisfaction

271 Retirement {cont.) selection processes and, 14, 50,112,115, 116-117,122,155,213-214, 218 n.ll, 221 studies of, 11, 35,192, 230-231 talk about, 143-144,153,221 as timing problem, 90,135-136,193-195, 198,208, 221-222,230 Satisfaction semantics of, 191-192,196,198 with job, 89,213-215,216,217 n.6 with retirement, 192-193, 209-216 with timing of retirement, 199-209, 211 Secure Employment Level (SEL) program, 41,43,45 Seniority regulating queues by, 7, 8, 33-34, 85 n.7, 131 n.26,166,169,173, 226-227 retirement decision and, 55, 96, 98-100 "Rule of 85," 55,63, 64 worker attachment and, 34, 50, 51-52,101, 120,122 Skill behavioral regimens, 4, 27,224, 225 levels, 4, 33,129 n.l4 management interests and, 150, 233 retirement decision and, 105,154, 233 Social Security Act Act of 1935, 29 amendments to, 35,165,234-235 benefits age eligibility for, 24, 29, 45 n.l private-pension integration in, 29, 30, 34 See also Pensions, public Solidarity community politics and, 10-11, 38,179 concessionary bargaining and, 38, 185188 tensions among workers and, 164, 166-168,169,184,222 Solidarity (UAW newspaper), 12, 41, 166, 169 "Southern" strategy, 39 Taylorism, 4,19 n.7, 27, 224 Tax policy, 23, 30, 234 Toyota Motor Company, 42, 223 Trade union movement. See Labor unions

272 United Auto Workers (UAW), 3-5,7,18 n.4 contract negotiations and, 4,14,31,33, 34, 35,37,41,166 oppositional caucuses in, 186-187 organization of, 14,19 n.9, 31,187,190 n.l4 Voluntary Termination of Employment Program (VTEP), 85 n.8,188 n.l

Index Wage rates implicit contract and, 2,50 retirement decision and, 105 trends in, 33, 36,37,41-42,226,229 Wilson, Charles E., 4,5,34 Worker attachment, 2,4, 6-7,49,101,104, 120,128 n.ll Worker participation. See Quality of Work Life programs

PLENUM STUDIES IN WORK AND INDUSTRY COMPLETE C H R O N O L O G I C A L LISTING Series Editors: Ivar Berg, University of Pennsylvania, Philadelphia, Pennsylvania and A m e L. Kalleberg, University of North Carolina, Chapel Hill, North Carolina

WORK AND INDUSTRY Structures, Markets, and Processes Ame L. Kalleberg and Ivar Berg WORKERS, MANAGERS, AND TECHNOLOGICAL CHANGE Emerging Patterns of Labor Relations Edited by Daniel B. Cornfield INDUSTRIES, FIRMS, AND JOBS Sociological and Economic Approaches Edited by George Farkas and Paula England MATERNAL EMPLOYMENT AND CHILDREN'S DEVELOPMENT Longitudinal Research Edited by Adele Eskeles Gottfried and Allen W. Gottfried ENSURING MINORITY SUCCESS IN CORPORATE MANAGEMENT Edited by Donna E. Thompson and Nancy DiTomaso THE STATE AND THE LABOR MARKET Edited by Samuel Rosenberg THE BUREAUCRATIC LABOR MARKET The Case of the Federal Civil Service Thomas A. DiPrete ENRICHING BUSINESS ETHICS Edited by Clarence C. Walton LIFE AND DEATH AT WORK Industrial Accidents as a Case of Socially Produced Error Tom Dwyer WHEN STRIKES MAKE SENSE — AND WHY Lessons from Third Republic French Coal Miners Samuel Cohn THE EMPLOYMENT RELATIONSHIP Causes and Consequences of Modem Personnel Administration William P. Bridges and Wayne J. Villemez LABOR AND POLITICS IN TPIE U.S. POSTAL SERVICE Vem K. Baxter

PLENUM STUDIES IN WORK AND INDUSTRY COMPLETE CHRONOLOGICAL LISTING

NEGRO BUSINESS AND BUSINESS EDUCATION Their Present cind Prospective Development Joseph A. Pierce Introduction by John Sibley Butler THE OPERATION OF INTERNAL LABOR MARKETS Staffing Practices and Vacancy Chains Lawrence T. Pinfield SEGMENTED LABOR, FRACTURED POLITICS Labor Politics in American Life William Form ENDING A CAREER IN THE AUTO INDUSTRY "30 and Out" Melissa A, Hardy, Lawrence Hazelrigg, and Jill Quadagno