Monday, June 06, 2005

Retirement and Feeding the Old

Oh lordie, lordie, me. Both Becker and Posner want to repeal ADEA. Posner also wants to give out competence tests, which would be a good idea, except he wants to exempt incompetent young people for reasons that totally escape me.

Lets start with the ADEA.

How, pray tell, does ADEA for non-life-tenured employees give rise to widespread incompetence, as Becker seems to imply (by coupling a suggestion to repeal the ADEA with an argument that permitting the market to have fixed retirement ages can permit exceptions to be made for the competent)? Firing someone for demonstrated incompetence is not unlawful age discrimination. (Of course, if Becker did not intend to imply that ADEA increases incompetence among non-life-tenured employees, the question then becomes what imaginable harm does the ADEA do?)

Nor does it seem likely that there is vast overenforcement of the ADEA such that incompetence-firings are inappropriately punished as age-firings: in fy04, the EEOC only found reasonable cause in 3.3% of charges and settled an additional 5.0%. Even acknowledging that a certain percentage of the administrative closures were people yanking it to bring federal lawsuits, some of which would be successful, the EEOC still killed 60.6% of the cases in the initial stages. While these statistics don't have any independent meaning without knowing how many charges were actually meritorious, it does suggest that those who are charged with enforcing the statute are alert against frivolous claims. If they can catch 60% of supposedly bad claims, it's unlikely that blatantly implausible claims are getting by.

Posner's post sadly agrees with Becker: "Repealing the Age Discrimination in Employment Act would be a superior alternative to requiring tests of elderly professors, but is politically infeasible."

What would the consequences of this be for our economy? They seem likely to be extremely severe. Social Security is likely to face serious cuts one way or the other in the near future. The vulnerability of 401k plans was seen in the wake of the recent corporate scandals (Enron, Worldcom, etc.). Anecdotally, it seems that employers are much less willing to give out pensions. Similarly, mass layoffs are much more common now than they were when Becker and Posner were facing entry into the job market. In this context, they want to permit employers to refuse to hire people over 40, or over 50, or occasionally "clean house" and get rid of everyone with grey hair?

HOW WILL THE OLD PEOPLE SUPPORT THEMSELVES?

This is a more general complaint many people have against "the shamans of law and econmics." They all too often ignore what they term the "distributive" effects of their proposals. The basic theory is that if their principles lead to the "efficient" result (overall utility-maximing, society-wide), the distributive effects can be solved directly though e.g. tax and transfer. The problem is that (a) tax-and-transfer itself has costs, so requiring it to do more work might reduce overall efficiency, and (b) tax-and-transfer is difficult to achieve when political power is connected to wealth. There's a path-dependence at work here: the people who get the wealth under any given set of legal rules then use the political power that this wealth confers to ensure that said wealth isn't redistributed away from them. (For an easy-to-understand summary of many of the deeper theoretical critiques of "law and economics," by the way, read the start of this review of a l&e book in the Yale Law Journal by a legal philosopher.)

So we can't just say "injuring the elderly just means that we'll have to tax the beneficiaries of the purportedly increased workplace competence and transfer it to the elderly." The beneficiaries of that competence will not go quietly. Realpolitik.

The consequence of an ADEA repeal would thus be that as more people find they can't change jobs beyond a certain age, or get laid off and can't find new work, the cat food industry will surely boom from its new elderly customer base.

I agree with Posner on the issue of giving out a competence test of some kind, but why age? Why not in general? My most incompetent professor in undergrad was a woman who looked to be in her late 20s. Possibly the most horrifying experience in my life was to observe her draw a map of Asia, in her international relations class, to illustrate some point or other: she put India north of China. Why not give a competence test to all life-tenured employees, every five years, regardless of age?

(More reading: Over at Prawfsblawg, Daniel Solove makes the important point that Posner [and Becker too] never provided any reason to believe that there is a significant problem with incompetence that demands these drastic measures.)