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Title: Pensions and Implicit Contracts: A Labor Market Test
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Mehrzad, Nasser |
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Pensions and Implicit Contracts: A Labor Market Test Ph.D. Dissertation, West Virginia University, 1987 Cohort(s): Older Men Publisher: UMI - University Microfilms, Bell and Howell Information and Learning Keyword(s): Layoffs; Pensions This dissertation tests the strength of implicit pension contracts. Defined benefit pensions base retirement annuities upon final salary with the firm weighted by years of service. Given positive nominal wage growth, vested benefits accrue disproportionately late in the career. This deferral may present the possibility for opportunistic behavior by employers. If workers and firms agree to an implicit contract under which workers assume long tenure with the firm, they will forego current wages at a rate exceeding the actual accumulation of legal pension benefits. The employer may realize a clear short-term benefit by violating this contract. The employer is able to impose pension losses by laying off or by lowering the wage of pension covered workers as they near retirement age. This implication, however, ignores the long-run consequences of such behavior to the firm. Thus whether workers are "cheated" is an empirical question. Are pre-retirement pension covered workers more likely to experience layoffs? The results, using both the Bureau of Labor Statistics' layoff data and the NLS Older Men data, indicate that pensions appear to reduce the likelihood of discharges among pension-covered workers. This finding suggests that firms honor the implicit pension contract. No evidence was found that ERISA has reduced firms' permanent layoffs of pension-covered workers. Thus, firms appear to have honored the contract even prior to the enactment of ERISA. The empirical findings of additional tests using the NLS provide no evidence that firms "cheat" pension-covered workers by delivering lower wages than promised at later stages of worker's career. |
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Bibliography Citation
Mehrzad, Nasser. Pensions and Implicit Contracts: A Labor Market Test. Ph.D. Dissertation, West Virginia University, 1987. |