Saturday, March 19, 2011

Tenure and the end of mandatory retirement (Canada edition)

Frances Woolley has a nice post about the intersection between tenure and the lack of a mandatory retirement age in Canada. It is a different case than the debate in Canada. The background is that salary scales and tenure agreements (at Canadian Universities) were negotiated when there was a mandatory retirement age of 65. The removal of mandatory retirement was a windfall for professors who were already employed as they work under a salary scale designed for workers who would leave at 65.

In practical terms this can have a fairly important impact on budgets as it adds additional years of salary at the highest levels (often 2.5 x starting salary in a Canadian University). Frances has a nice chart here. The short term implications are stark:

Such a pay structure can be profitable as long as the pay structure is similar to the one shown in the diagram above, where the high costs of paying workers between 45 and 65 are counter-balanced by the low cost of paying workers between 25 and 45. But if the terms of the employment arrangement were changed so that workers stayed on until 75, the firm's pay structure would no longer be profitable: the costs of paying experienced workers more would exceed the gains from underpaying junior workers.

I think that there is an important balance between job security and balancing out employment contracts. In this case, due to regulatory changes, I think it would make a lot more sense if tenure elapsed at the traditional retirement age. In this case we have the reverse of what is happening in the United States for teachers -- the employment contract changed in mid-stream. I think it is consistent to argue, in both cases, that a change of contract terms should not result in a windfall for either party unless the change was by mutual consent.

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