Working Paper: NBER ID: w0854
Authors: Edward P. Lazear
Abstract: This paper argues that pensions are used as severance pay devices in an efficient compensation scheme. The major points of the study are: (1) Severance pay, which takes the form of higher pension values for early retirement, is widespread. (2) A major reason for the existence of pensions is the desire to provide an incentive mechanism that can also function as an efficient severance pay device. It is incorrect to think of pensions merely as a tax-deferred savings account. (3) The wage rates that older workers receive exceed their marginal products. This is evidenced by the fact that employers are willing to buy them out with higher pensions if they retire early. These conclusions are based upon examination of a data set which was generated as part of this study. That data set contains detailed information on 244 of the largest pension plans in the country, covering about 8 million workers.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pension structures (H55) | labor mobility (J62) |
| severance pay (J65) | early retirement decisions (J26) |
| pension structure (H55) | retirement decisions (J26) |
| pension structure (H55) | labor market efficiency (J48) |
| expected present value of pensions (H55) | retirement decisions (J26) |
| pensions (H55) | labor mobility (J62) |