A Role for Private Pensions in Labour Contracts

Mak Arvin

Oxford Economic Papers, 1991, vol. 43, issue 1, 99-115

Abstract: In a world where workers have diminishing marginal utility from consumption and firms are profit-maximizers, this paper argues that workers inability to lend and borrow (i.e., imperfect capital markets) and firms' inability to monitor their employees' outside offers (i.e., asymmetric information) are jointly sufficient to explain: (1) why pension income and wage income are not perfect substitutes for workers; (2) how pensions--as deferred, contingent (on length of tenure) compensation--help to regulate labor turnover; (3) why pension payments are generally less than workers' final wages; (4) why workers receive their highest post-training wage in the last period of their working life; and (5) why wage profiles are not in general flat. Copyright 1991 by Royal Economic Society.

Date: 1991
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