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Pensions as Severance Pay

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  • Edward P. Lazear

Abstract

Earlier claims that pensions serve as severance pay are corroborated by a new data set drawn from the 1980 Banker's Trust corporate pension plan study. A model is developed that shows how pension values which vary with the age of retirement make both workers and firms better off by moving the equilibrium in the direction of a perfect-information, first-best optimum. This requires that pension values decline with the age of retirement beyond a certain point. Evidence from the 1975 and 1980 data sets supports this claim. To the extent that any significant change has occurred between 1975 and 1980, most important is that the ratio of early retirement pension value to normal retirement pension value has increased.

Suggested Citation

  • Edward P. Lazear, 1982. "Pensions as Severance Pay," NBER Working Papers 0944, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0944
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    References listed on IDEAS

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    1. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-257, April.
    2. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-307, May.
    3. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    4. Jerry R. Green, 1981. "Wage-Employment Contracts (Replaced by W0675)," NBER Working Papers 0623, National Bureau of Economic Research, Inc.
    5. Arnott, Richard J & Stiglitz, Joseph E, 1985. "Labor Turnover, Wage Structures, and Moral Hazard: The Inefficiency of Competitive Markets," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 434-462, October.
    6. Jeremy I. Bulow, 1981. "Early Retirement Pension Benefits," NBER Working Papers 0654, National Bureau of Economic Research, Inc.
    7. Jerry R. Green & Charles M. Kahn, 1981. "Wage-Employment Contracts: Global Results," NBER Working Papers 0675, National Bureau of Economic Research, Inc.
    8. 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.
    9. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
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