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The Employment Contract, Corporate Financial Structure and the Regulation of Private Pension Plan Funding

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  • Richard J. Arnott
  • Mark Gersovitz

Abstract

One Strand of the literature of the employment contract focuses on the role of the contract in providing for the efficient sharing of risk between capitalists and workers. One way capitalists can shift risk to workers is to provide part of workers" renumeration in the form of an unfunded, deferred pension. Since bonds, in the event of bankruptcy, are typically senior to unfunded pension liabilities, capitalists can also affect their risk by altering the firm's debt to equity ratio. These observations suggest that corporate financial structure and the employment contract are interdependent. This paper has two major goals. The first it to take a step towards integrating the theory of corporate financial structure with that of the employment contract. The second is to investigate the consequences of legislation which regulates the funding of private pensions.

Suggested Citation

  • Richard J. Arnott & Mark Gersovitz, 1978. "The Employment Contract, Corporate Financial Structure and the Regulation of Private Pension Plan Funding," Working Paper 286, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:286
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