Two main issues regarding employer-provided private pension plans have been evaluated for a new industrialized economy - Taiwan. In particular, we focus on how favorable tax treatment of pension benefits affect pension coverage and how pensions influence an employee's decision to quit. We examine the behavioral explanations for having jobs with pension as well as labor turnover, and further evaluate them empirically. Finally, we discuss policy implications.
A three period model of utility maximization predicts that both income and marginal tax rate are positively correlated with pension coverage. Using an instrumental variables approach, the empirical analysis provides evidence consistent with these hypotheses. The coefficients on marginal tax rate are significantly positive in each of the three cross sections by age, for both male and female. Predicted earnings at age 55 is positively related to coverage for both males and females.
In the second part of this dissertation, we focus on the on-the-job search. It is hypothesized that workers covered by pensions have lower turnover rates than uncovered workers. While our females' response is somewhat less, the evidence reviewed in this study clearly suggests that the implicit loss of pension wealth associated with changing jobs does affect a worker's decision to search for an alternative job. An employee's decision to search for a job is influenced not only by the existence of a private pension plan, but also by the provisions of that plan that determine the value of later retirement benefits and the probability of actually receiving them. It is worth noting that some of the impacts we have identified are quite substantial. We noted, for example, that pension loss decreases the search decision of men by 4.2 percentage points on average.Our results suggest that employers can and should view pension plan characteristics as an effective mechanism for altering labor supply behavior. To the extent that such characteristics really alter individual searching decisions, they can be used to manage labor turnover and its associated costs.