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

Dhiren Patki

Journal of Political Economy Macroeconomics, 2025, vol. 3, issue 3, 305 - 342

Abstract: This paper studies the elimination of defined benefit pensions and subsequent adoption of 401(k) plans by US employers. Using matched employer-employee data linked to thousands of firm-level retirement plan changes, it shows that unexpected losses in future compensation engendered by pension plan transitions induce premature retirement for some workers and delayed retirement for others. Heterogeneity in retirement behavior stems from differences in the relative strength of substitution and wealth effects. Exploiting treatment effects as estimation targets, it fits a model of retirement and uses the model to quantify welfare costs and labor supply effects of changes in workplace pension structure.

Date: 2025
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