Occupational Pensions and Interfirm Job Mobility in the European Union. Evidence from the ECHP Survey

Although the issue of portability of occupational pension rights has been high on the European Union (EU) policy agenda in the last two decades, no comparative studies have been produced to support the policy debate with empirical evidence. Using data from the European Community Household Panel survey we estimate the role of occupational pensions on individual job mobility choices for a sample of EU Member States - Denmark, Ireland, the Netherlands and the United Kingdom - where occupational pensions play a major role in the provision of retirement income. We model individual job mobility choices as driven by ex-ante evaluation of the expected benefits and costs from mobility. The latters include potential pension portability losses arising to workers covered by defined benefit plans. Within a switching regression econometric framework we control for potential selection bias due to unobservables simultaneously affecting prospective wages and job mobility choices. This allows us to predict counterfactual (unobserved) wages for both movers and stayers and to identify the expected wage differential as well as the mobility cost parameters in a structural probit equation. We find that, among the countries under study, pension covered workers are significantly less likely to move only in the United Kingdom, while pension portability losses do not generally act as a significant impediment to labour mobility. Although these results are consistent with the pension portability options quaranteed by defined contribution plans in Denmark and by industry wide and company defined benefits plans in the Netherlands, they provide somewhat surprising evidence for the United Kingdom and particularly for Ireland, where defined benefit pensions tipically have limited portability. Rather, the finding of positive wage premiums accruing to pension covered workers in the latter two countries, particularly in Ireland, is consistent with the view that individuals are less likely to leave “good” jobs.