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Explaining Pension Dynamics

  • Rebecca A. Luzadis
  • Olivia S. Mitchell

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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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
Note: LS
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  1. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  2. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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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