The Implicit Pension Contract: Developments and New Directions
Pension economics has emerged as a separate literature over the past decade. Some of the early pension work was devoted to financial issues, including implications of pensions for savings rates and portfolio allocation. Most new developments, however, have stemmed from research surrounding labor markets. This research has led to an implicit contract theory of pensions, a theory that has pensions playing a more complicated role in worker-firm relation than heretofore realized. The theory explains much of economic behavior in labor markets, and bridges a gap between labor and financial literatures. This essay describes the genesis for these ideas and traces some of the most important research results in the area. An equal amount of spece is devoted to a consideration of likely directions for future research.