Wednesday, April 8, 2009

Laws Gone Wild - Banning Old Age

To me this is another of the flawed anti-discrimination laws leading to absurd consequences. I'm talking of the Age Discrimination in Employment Act (ADEA) of 1967 and its subsequent amendments.

We hear much more about countering discrimination against minorities and women, and resultant affirmative action. Despite vigorous denials from its liberal advocates this often becomes a drive to fill quotas. Barack Obama last month quoted some gender disparities in pay and top executive positions to imply unequal treatment of women. Now if there is any real bias or violation of the principle of "equal pay for equal work" I'm all for vigorous corrective action. But just the numbers being thrown around do not establish this, and there are more benign explanations.

The fact that many working women opt for a better balance between work and family, and take some years off to raise children can explain their making 78 cents for every dollar that men make. Similarly, there may be very few women who are prepared to put in 14 hour workdays to have a shot at the corner office. That, rather than a glass ceiling, may largely be why only 3% of Fortune 500 CEOs are women. To use these statistics to equate salaries or senior executive elevations among the genders may very well be reverse discrimination against men.

Other countries like India have quota-based intake of disadvantaged groups (like caste-based reservations) into government or public sector jobs, or into many educational institutions. So similar US practices do not surprise me as much as the "protections" against age discrimination. In India I never questioned the logic of having a mandatory retirement age. It used to be 58 years for most government jobs, and was subsequently raised to 60 years. For a few, mainly high positions, it extends to 62 or 65 years. After that, retirees who are willing and able to work can seek employment as contractors or consultants, or even be re-employed in the public sector as special cases. Private companies are free to have or not have mandatory retirement policies.

These practices make a lot of sense. Employees are recognized for their years of useful service while accepting the effects of age, and are given a cordial send-off after reaching a threshold. They leave with their memories and morale intact, making way for younger, more vigorous successors. Employers are free to retain exceptional workers past that point. But the rank and file know and accept the retirement age as a natural conclusion of this stage of their careers. If they want to work more they'll see no shame or a blow to their self-image to seek lighter or different, less paying work that may be more suited to their present stage of life. Even usually more liberal Europe recognizes the right to set an age for forced retirement.

This was pretty much the case in the US as well, till the ADEA of 1967 was amended in a series of steps from 1978 till 1993 to bar mandatory retirement in most sectors. Remarkably, the biggest blow was struck in the sweeping restrictions of the 1986 amendment when a Republican (Ronald Reagan) was President. Ideology notwithstanding it's hard to resist signing legislation favoring a key voting bloc like seniors ahead of the next Presidential election (that was won by Bush Sr.)

Adverse consequences of the US ban on mandatory retirement (many of which I've seen at first hand) include:

  • Older employees drawing the highest salaries have reason to stick it out as long as they can. Employers have to push them out for bad performance after documenting negative evaluations. Not only do the departing seniors feel humiliated at this ignominous end to their long career, but this can also hurt employees morale all around.
  • Managers in these situations have to give negative evaluations and terminate employees which subjects them to needless stress. Incidents of workplace violence and other fears of retaliatory action make the managers' job even harder.
  • Reducing "natural" turnover adversely affects the career prospects of promising younger employees, which can create friction among employees and again affect morale.
  • Older employees who manage to coast or "get by" are not replaced for many years by better, cheaper and more energetic younger employees. This makes for suboptimal company performance that aggregates to a drag on the economy, making it less competitive.

Bad, populist laws like these are politically hard to resist and block. Worse, once they are passed they're almost impossible to undo. Anyone attempting to do so despite the merits is likely to be painted as "anti-senior " and risks political suicide. So despite the pressures it is still much better to stop such laws before they are enacted.

I hope lawmakers (particularly Democrats) draw this lesson while considering the proposed Employee Free Choice Act ("Card Check Law.") This awful law being pushed by unions and liberals would allow unions to be formed without needing workers to vote their preferences by secret ballot. But that's another story.

No comments: