Work Savings Research Articles

Aligning against Indigenous jurisdiction: Worker savings, colonial capital, and the Canada Infrastructure Bank

This paper considers the significance of the newly conceived Canada Infrastructure Bank in relation to the political economy of settler colonialism in Canada. I argue that the Canada Infrastructure...

Unemployment insurance with limited commitment wage contracts and savings

Abstract I present a model of optimal contracts between firms and workers, under limited commitment and with worker savings. In the model, firms provide insurance against unemployment through targeting a frontloaded path of wages which encourages wealth accumulation. I provide analytical results characterising the wage and savings schedules and the path of consumption during employment and unemployment. I then consider how unemployment benefits affect risk sharing through private markets. I find that benefits should be frontloaded; the government has the incentive to drive the allocation to the point where the firm’s participation constraint binds. At this point wages are equal to productivity in every period, wealth exceeds the buffer stock level, and consumption and savings drop over time. The drop in the level of consumption during unemployment is mitigated. Finally, I compare the optimal contract model to the standard heterogeneous agent model whereby wealth is utilized for self-insurance purposes. I show that the two models are equivalent under the optimal UI policy.

'Financial Expert': A Subtle Blow to the Pool and Current Pipeline of Women on Corporate Boards

Governmental laws and regulations play critical roles and have impacting influences and consequences on corporations and their management and stakeholders as well as the public at large. Sometimes legislative initiatives and administrative actions have detrimental effects on groups of persons, which impacts may or may not be the intended consequences of the governmental protectionism. In the wake of the corporate scandals of the early 2000s, including Enron, WorldCom and Tyco International (the “Enron-type Scandals”), the President of the United States of America signed into law a bi-partisan initiative called the Sarbanes-Oxley Act of 2002 (“SOX”) in an attempt to restore investor confidence in the U.S. securities market following devastating corporate scandals that rocked the investment community and depleted worker savings. Section 407 is part of SOX (the “Expert Law”), which, in short, required the Securities and Exchange Commission (the “SEC”) to promulgate rules obligating certain security issuers to disclose if the applicable organization’s audit committee has at least one person who is a financial expert (as the term would be defined specifically by the SEC) and if no such person, the reason of such absence. The SEC met its regulatory obligation with Section 229.407(d)(5) of the Code of Federal Regulations (Item 407) (the “Expert Regulation”). However, the title and definition for the audit committee expert contain a gender bias and have negative inadvertent consequences against women on public company boards of directors. In this Article, “Financial Expert”: A Subtle Blow to the Pool and Current Pipeline of Women on Corporate Boards (this “Article”), the author addresses this bias and its negative inadvertent consequences and provides proposals that may curtail such bias and consequences, while achieving the goal of investor and public protection.

Social Norms, Rules of Thumb, and Retirement: Evidence for Rationality in Retirement Planning

Most economists assume economic agents are well informed, far sighted, and rational. By “rational” they mean that agents use sound logic when deciding on a course of action. Rational agents combine all the information at their disposal, including knowledge of their own references and long-term interests, to make logical choices that maximize their well-being given the constraints facing them. This essay considers empirical evidence on whether this model explains saving for retirement or the timing of retirement. Many observers are skeptical that workers make retirement decisions in the far sighted and logical manner just described. Unlike other economic choices, which are repeated many times over the course of one's life, the decision of when to retire is made only once. Workers are not given the opportunity to improve on decision making through constant repetition. As an alternative to fully rational decision making, agents might imitate the behavior of others who are presumed to be better informed or to have superior skills in planning. Alternatively, workers may adopt and follow simple rules of thumb, which can produce decisions that depart significantly from a financially optimal choice. The evidence on the financial soundness of workers' retirement choices is mixed. When polled about their preparations for retirement, large minorities of Americans acknowledge they have given no thought to the subject, have saved little or nothing in pension and other retirement accounts, and lack confidence they will be able to afford retirement. Many workers near retirement age are ignorant of the rules that will determine their pension benefits. Economists and financial planners report alarming evidence that middle-aged and older workers face large saving shortfalls compared with the nest eggs needed to retire at the typical retirement age. Extensive evidence shows that a substantial minority of workers experiences big drops in consumption after they retire, which appears to violate a basic implication of the life-cycle model. On the other hand, recent analysis of the best survey evidence on workers' earnings, pension accumulations, Social Security entitlements, and non-pension saving reveals that very few workers have nest eggs that obviously and substantially fall short of what is “optimal” under some conceivably rational plan. Many workers who have little or no retirement saving can all back on Social Security or public assistance to support minimal onsumption in old age. The drop in consumption that occurs after retirement could be explained by declines in workers' consumption requirements after they leave work. Alternatively, it could be the unwelcome byproduct of a plant closing or the onset of serious disease, events that force workers to leave work early. Even if the possibility of a plant closing or poor health were fully anticipated in a far-sighted plan, the worker may have rationally intended to accept a big cut in consumption if his or her career came to a premature end. This means we cannot rule out rational foresight when workers enter retirement with little savings or when they experience big drops in consumption over the course of their retirement. Bad outcomes may have been fully anticipated – and accepted – in a far-sighted and rational retirement plan. Recent research findings on worker savings and retiree consumption do not prove that retirement and saving decisions are made in a fully rational and far-sighted way. The evidence only shows it is hard to rule out rationality and far-sightedness using available information on households' consumption and savings. What older workers actually tell us about their saving behavior, retirement plans, and knowledge of pension rules suggests that relatively few make big investments in learning or thinking about the financial trade-offs that are relevant to retirement. Many workers probably consider the payoffs from such investments to be uncertain and small. Compared with the happiness that retired workers could obtain if they followed a rational and far-sighted retirement plan, the loss in happiness they actually experience using a simpler decision-making rule may be minor.

The Economic Consequences of Weintraub's Consumption Coefficient

In Michal Kalecki's work, aggregate profits are shown to be the sum of gross investment, the government budget deficit, the export surplus, and the difference between capitalist consumption and worker savings. In his 1979 paper, Weintraub suggested that the consumption coefficient, the ratio of total consumption to worker income, be used to generalize Kalecki's profit function by allowing the difference between capitalist consumption and worker savings to be expressed as a function of worker income. This generalization allows some post Keynesian assumptions (such as capitalist consumption equals worker savings and workers do not save and/or capitalists do not consume) to be dropped. Mair, Laramie, and Toporowski show that while use of the consumption coefficient simplifies and adds analytical precision to Kalecki's analysis, it does so at the cost of a loss of eliminating one of the dynamic channels of Kalecki's analysis, namely, the relationship between aggregate profits and capitalist marginal propensity to consume. They show the costs and benefits of using the consumption coefficient by outlining Kalecki's original model and including the consumption coefficient in order to analyze the effect of Weintraub's contribution to Kalecki's post Keynesian framework.