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Pension Shocks and Wages

Pawel Adrjan () and and Brian Bell

No 849, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: 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: J31 J32 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-eur and nep-lma
Date: 2018-04-05
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