Working Paper: NBER ID: w10714
Authors: Leora Friedberg; Michael Owyang
Abstract: Current and expected job tenure have fallen significantly over the last two decades. Over the same period, traditional defined benefit pensions, designed to reward long tenure, have become steadily less common. This paper uses a contract-theoretic matching model with moral hazard to explain changes in pension structure and job tenure. In our model, a decline in the value of existing jobs relative to new jobs reduces expected match duration and thus the appeal of DB pensions. We show that this explanation is consistent with observed trends and suggests an additional consequence of technological change that has not been closely studied.
Keywords: pension structure; job tenure; defined benefit pensions; technological change
JEL Codes: J32; J63; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in the value of existing jobs relative to new jobs (J63) | Reduction in expected match duration (C41) |
| Reduction in expected match duration (C41) | Diminished appeal of DB pensions (J26) |
| Technological change (O33) | Reduced value of long-term jobs (J63) |
| Higher rates of technological change (O39) | Lower job tenure (J63) |
| Higher rates of technological change (O39) | Lower DB pension coverage (H55) |
| Decline in DB pension coverage (J32) | Decline in job tenure (J63) |
| DB pensions (H55) | Longer job tenures (J63) |