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Working Paper 2002-022D

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"Explaining the Evolution of Pension Structure and Job Tenure"
by Leora Friedberg, and Michael T. Owyang

Current and expected job tenure have fallen significantly over the last two decades. Over the same period, traditional defined benefit pensions, designed to reward long tenure, have become steadily less common. This paper uses a contract-theoretic matching model with moral hazard to explain changes in pension structure and job tenure. In our model, a decline in the value of existing jobs relative to new jobs reduces expected match duration and thus the appeal of DB pensions. This explanation is consistent with observed trends and suggests an additional consequence of technological change that has not been closely studied.

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Category > Applied Microeconomics
Author > Michael T. Owyang