The Incentive Effects of Private Pension Plans

77 Pages Posted: 16 Jul 2004 Last revised: 19 Aug 2010

See all articles by Laurence J. Kotlikoff

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: December 1984

Abstract

The proportion of workers covered by pensions has increased very substantially over the past two or three decades, and in particular the number of older workers with pensions continues to increase. During the same period,and especially in the past decade, the labor force participation of older workers has declined dramatically. These two trends may well be related. This paper examines the incentive effects of private pensions. We find that the provisions of pension plans provide very substantial incentives to terminate work at the current job after the age of early retirement and even greater incentives to leave after the age of normal retirement. It is not unusual for the reduction in pension 'benefit accrual after these retirement ages to equal the equivalent of a 30 percent reduction in wage earnings. In addition to a potentially large impact on labor force participation of older workers, pension plan provisions are likely to have important effects on labor mobility of younger workers.

Suggested Citation

Kotlikoff, Laurence J. and Wise, David A., The Incentive Effects of Private Pension Plans (December 1984). NBER Working Paper No. w1510. Available at SSRN: https://ssrn.com/abstract=336274

Laurence J. Kotlikoff (Contact Author)

Boston University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Gaidar Institute for Economic Policy

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David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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