Abstract
Using new linked employer-employee data from Germany, this article provides the first evidence on the effect of employer provided occupational pensions on work engagement. Famous efficiency wage theories predict that pensions enhance effort if a risk of forfeiture of pension claims is present. Exploiting the German non-forfeiture clause for employer-provided pensions, the results are consistent with the theoretical prediction and show that pensions in combination with the risk of forfeiture exert a positive effect on work engagement. Since occupational pension claims are selectively distributed across establishments, I control for establishment heterogeneity, but point estimates remain of the same size. Conditional quantile regression estimates indicate that especially the lower end of the engagement distribution is affected, which suggests that pensions combined with the risk of forfeiture are effective to reduce incentives for shirking.
Highlights
Many Germans rely solely on the public pay-as-you-go pension scheme in which pensions are financed by contemporary contributions to the social security system
Exploiting the German non-forfeiture clause for employer-provided pensions, the results are consistent with the theoretical prediction and show that pensions in combination with the risk of forfeiture exert a positive effect on work engagement
Since occupational pension claims are selectively distributed across establishments, I control for establishment heterogeneity, but point estimates remain of the same size
Summary
Many Germans rely solely on the public pay-as-you-go pension scheme in which pensions are financed by contemporary contributions to the social security system. Regression estimates show that even after controlling for wages, bonus payments, and general job satisfaction, occupational pensions have a large and significant correlation with wage satisfaction What is more, this perceived wage premium is of similar size for employees facing the risk of forfeiture and those whose pension claims are vested. The non-forfeiture clause for employer provided pension suggests a clear distinction between vested pension claims and employees facing the risk of forfeiture, within the first five years of contributions. Within this five-year period, individuals face a severe punishment in the case of job loss, and the employer provided pension reduces incentives for shirking. Data source: LPP 2012 and IAB-Establishment Panel 2012, analysis sample
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