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Explaining Pension Dynamics

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  • Rebecca A. Luzadis
  • Olivia S. Mitchell

Abstract

Some contend the US labor market will fail to adapt smoothly to an aging workforce, whereas others argue that employee pensions can and will play an important role in helping companies induce desired turnover patterns. This paper undertakes a longitudinal examination of pension retirement incentives in several dozen plans observed between about 1960 to 1980. The plans under study instituted many changes over this period, several of which enhanced the financial payoff to early retirement. These alterations included increases in benefit levels, reductions in early, normal and mandatory retirement ages, and cuts in the age at which pension present values peak (with retirement after that age penalized). We also find that simple indicators of pension plans' structural features (e.g. the plan's early retirement age) do not adequately summarize the complex financial incentives inherent in pensions, so that most of our attention is directed to analysis of financial benefit level measures. Three major explanations for observed pension outcomes are evaluated empirically. Of special policy interest is an evaluation of pension responses to changes in Social Security benefit rules. Additionally, key differences in behavior are discovered between single employer and multiemployer pension plans. We conclude that pension plan behavior is systematically related to both labor and product market characteristics, and is responsive to retirement income policy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3084.

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Date of creation: Aug 1989
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Publication status: published as Luzadis, Rebbeca A. and Olivia S. Mitchell. "Explaining Pension Dynamics." Journal of Human Resources, 26, Fall 1991: 679-703
Handle: RePEc:nbr:nberwo:3084

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References

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  1. Phillip B. Levine & Olivia S. Mitchell, 1988. "The Baby Boom's Legacy: Relative Wages in the 21st Century," NBER Working Papers 2501, National Bureau of Economic Research, Inc.
  2. repec:fth:stanho:e-88-28 is not listed on IDEAS
  3. Olivia S. Mitchell & Emily S. Andrews, 1981. "Scale economies in private multi-employer pension systems," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(4), pages 522-530, July.
  4. Olivia S. Mitchell & Rebecca A. Luzadis, 1988. "Changes in pension incentives through time," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 42(1), pages 100-108, October.
  5. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  6. Steven G. Allen & Robert L. Clark & Daniel A. Sumner, 1984. "Post-Retirement Adjustments of Pension Benefits," NBER Working Papers 1364, National Bureau of Economic Research, Inc.
  7. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  8. Richard V. Burkhauser, 1979. "The Pension Acceptance Decision of Older Workers," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 63-75.
  9. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, June.
  10. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 439-57, October.
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Cited by:
  1. Olivia S. Mitchell, 1993. "Retirement Systems in Developed and Developing Countries: Institutional Features, Economic Effects, and Lessons for Economies in Transition," NBER Working Papers 4424, National Bureau of Economic Research, Inc.
  2. Garen, John & Berger, Mark & Scott, Frank, 1996. "Pensions, non-discrimination policies, and the employment of older workers," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(4), pages 417-429.
  3. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
  4. Dan A. Black, 1996. "Family Health Benefits and Worker Turnover," Labor and Demography 9604001, EconWPA.
  5. Olivia S. Mitchell, . "Developments in Pensions," Pension Research Council Working Papers 98-4, Wharton School Pension Research Council, University of Pennsylvania.
  6. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
  7. Olivia Mitchell, 1999. "New Trends in Pension Benefit and Retirement Provisions," NBER Working Papers 7381, National Bureau of Economic Research, Inc.
  8. Christopher J. Ruhm, 1994. "Do Pensions Increase the Labor Supply of Older Men?," NBER Working Papers 4925, National Bureau of Economic Research, Inc.
  9. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1993. "The Role of Pensions in the Labor Market," NBER Working Papers 4295, National Bureau of Economic Research, Inc.
  10. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1994. "Retirement Research Using the Health and Retirement Survey," NBER Working Papers 4813, National Bureau of Economic Research, Inc.
  11. Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.

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