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Severance Pay, Pensions, and Efficient Mobility

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  • Edward P. Lazear

Abstract

This paper argues that pensions are used as severance pay devices in an efficient compensation scheme. The major points of the study are: (1) Severance pay, which takes the form of higher pension values for early retirement, is widespread. (2) A major reason for the existence of pensions is the desire to provide an incentive mechanism that can also function as an efficient severance pay device. It is incorrect to think of pensions merely as a tax-deferred savings account. (3) The wage rates that older workers receive exceed their marginal products. This is evidenced by the fact that employers are willing to buy them out with higher pensions if they retire early. These conclusions are based upon examination of a data set which was generated as part of this study. That data set contains detailed information on 244 of the largest pension plans in the country, covering about 8 million workers.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0854.

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Date of creation: Feb 1982
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Publication status: published as Edward P. Lazear, 1983. "Pensions as Severance Pay," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 57-90 National Bureau of Economic Research, Inc.
Handle: RePEc:nbr:nberwo:0854

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References

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  1. Green, Jerry & Honkapohja, Seppo, 1983. "Bilateral Contracts," Scholarly Articles 3204671, Harvard University Department of Economics.
  2. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-07, May.
  3. Richard V. Burkhauser & Joseph F. Quinn, 1983. "The Effect of Pension Plans on the Pattern of Life Cycle Compensation," NBER Chapters, in: The Measurement of Labor Cost, pages 395-420 National Bureau of Economic Research, Inc.
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Cited by:
  1. Ann P. Bartel & Nachum Sicherman, 1990. "Technological Change and the Careers of Older Workers," NBER Working Papers 3433, National Bureau of Economic Research, Inc.
  2. David Neumark, 2001. "Age Discrimination Legislation in the United States," NBER Working Papers 8152, National Bureau of Economic Research, Inc.
  3. Edward P. Lazear, 1983. "Incentive Effects of Pensions," NBER Working Papers 1126, National Bureau of Economic Research, Inc.
  4. David McCarthy, 2003. "A Lifecycle Analysis of Defined Benefit Pension Plans," Working Papers wp053, University of Michigan, Michigan Retirement Research Center.
  5. Olivia S. Mitchell & Gary S. Fields, 1983. "Economic Incentives to Retire: A Qualitative Choice Approach," NBER Working Papers 1096, National Bureau of Economic Research, Inc.

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