Breaking the Implicit Contract: Using Pension Freezes to Study Lifetime Labor Supply

Dhiren Patki

No 21-7, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper studies the elimination of traditional pensions and subsequent adoption of 401(k) plans by U.S. employers. Using thousands of firm-level natural experiments, it shows that unexpected losses in future compensation engendered by pension plan transitions induce premature retirement for some workers and delayed retirement for others. Observed heterogeneity in retirement behavior is indicative of differences in wealth and in preferences for leisure. Using credibly identified treatment effects as estimation targets, it fits a structural model of retirement and uses the model to evaluate the effect of a counterfactual reform that eliminates Social Security payroll taxes for older workers.

Keywords: labor supply; pensions; retirement savings; Social Security payroll tax (search for similar items in EconPapers)
JEL-codes: D15 H24 J26 J32 J41 M52 (search for similar items in EconPapers)
Pages: 58
Date: 2021-06-01
New Economics Papers: this item is included in nep-age and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:92873

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DOI: 10.29412/res.wp.2021.07

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