Pension shocks and wages

Pawel Adrjan and Brian Bell

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: wages; pensions; frictions (search for similar items in EconPapers)
JEL-codes: G32 J31 J32 (search for similar items in EconPapers)
Date: 2018-03-01
New Economics Papers: this item is included in nep-age
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://eprints.lse.ac.uk/88687/ Open access version. (application/pdf)

Related works:
Working Paper: Pension shocks and wages (2018)
Working Paper: Pension Shocks and Wages (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:88687

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