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Pension Shocks and Wages

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  • Pawel Adrjan
  • and Brian Bell

Abstract

How do wages respond to firm-level idiosyncratic cost shocks? We create a unique dataset that links longitudinal data on workers’ compensation to the unexpected costs that UK firms have been forced to pay to plug large deficits in their legacy defined benefit pension plans. We show that firms are able to share the burden of such costs when a significant share of their workers are current or former members of the plan. We also investigate how compensation responds to the closure of defined benefit plans to future benefit accrual. We find that firms are able to use such closures to effectively reduce total compensation of workers who are plan members. These results point to significant frictions in the labour market, which we show are a direct result of the pension arrangement that workers have. Closing schemes has an implicit cost for firms since it reduces the frictions that workers face.

Suggested Citation

  • Pawel Adrjan & and Brian Bell, 2018. "Pension Shocks and Wages," Economics Series Working Papers 849, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:849
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    References listed on IDEAS

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    1. Haverstick, Kelly & Munnell, Alicia H. & Sanzenbacher, Geoffrey & Soto, Mauricio, 2010. "Pension type, tenure, and job mobility," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(4), pages 609-625, October.
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    7. Neeru Chaudhry & Hue Hwa Au Yong & Chris Veld, 2017. "How does the Funding Status of Defined Benefit Pension Plans Affect Investment Decisions of Firms in the United States?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(1-2), pages 196-235, January.
    8. Patrick Kline & Neviana Petkova & Heidi Williams & Owen Zidar, 2019. "Who Profits from Patents? Rent-Sharing at Innovative Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 134(3), pages 1343-1404.
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    Cited by:

    1. Pawel Adrjan, 2018. "Risky Business? Earnings Prospects of Employees at Young Firms," Economics Series Working Papers 852, University of Oxford, Department of Economics.

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    More about this item

    Keywords

    Wages; Pensions; Frictions;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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