Volume 29, Number 3 (Summer) 1994
Ippolito, Richard A. 1994. "Pensions and Indenture Premia." Journal of Human Resources 29(3):795-812.
The implicit pension contract has provided a theoretical basis for the observed relation between pensions, less quitting and earlier retirement. But it also has encouraged difficulty explaining why wages seem "too high" in pension firms. This anomaly has been taken by some to imply that efficiency wages, not pension capital losses, explain why quitting is abnormally low in defined benefit pensions. In this paper, I pursue an alternative explanation, that the implicit contract model is oversimplified because it ignores supply conditions facing long-tenure firms. I show that once an allowance is made for compensation required by workers for entering long-term labor contracts, numerous anomalous empirical observations in the pension market are explicable.
Richard A. Ippolito is a researcher at the Pension Benefit Guaranty Corporation. The views expressed in this paper do not reflect the official position of the PBGC. The author is indebted to Bill Even, Pauline Ippolito, Greg Niehaus, Tom Steinmeier, and the referees for helpful comments on earlier versions. The data used in this article can be obtained beginning in February 1995 through February 1998 from the author at the following address: 1200 K Street, Washington, D.C. 20005.
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