Encouraging Long-Term Tenure: Wage Tilt or Pensions?

Abstract

The author analyzes data on 6,416 persons in 109 firms to determine whether the length of these workers' tenure was positively related either to wage tilt—the payment of below-market wages in the early years of the worker's employment with a firm and above-market wages in the later years—or to the presence of defined benefit pension plans. Contrary to the popular (but little-tested) hypothesis that wage tilt is important in inducing workers to make long-term commitments to the firm, the results show that wage tilt had no significant effect on tenure, except indirectly through its effect on pension quit costs. In contrast, pensions increased tenure in the firm, on average, by more than 20%.

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