Opportunistic Behavior by Firms in Implicit Pension Contracts
Several studies have established that under the most common form of pension coverage, benefits accrue disproportionately near the end of a worker's career. Such backloading establishes a penalty for early quitting but may also create an incentive for opportunistic firm behavior. Because benefits generally are a function of highest earnings, when nominal earnings are expected to rise, an employer can reduce pension liabilities by discharging workers prior to retirement. This paper uses the National Longitudinal Survey of Mature Men to test whether such actions by employers are systematic. We estimate that pension-covered workers with mean losses are less likely to be discharged. Unexpected increases in pension losses due to increases in inflation, however, raise the risk of discharge. We find no evidence that the minimum vesting standards of the Employees' Retirement Income Security Act reduces the likelihood of discharge for older workers who previously were not vested. These results are consistent with an implicit pension contract under which employer compliance is enforced by reputation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:uwp:jhriss:v:26:y:1991:i:4:p:704-725. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.