The theory of equalizing differences suggests that employer provided pension benefits should be compensated by reduced wage benefits for an employee’s given productivity potential. This paper presents an empirical analysis of compensating wage differentials for occupational pension scheme benefits in the UK using the newly available English Longitudinal Study of Ageing. The data allows us to differentiate between Defined Benefit (DB) and Defined Contribution (DC) schemes and to consider different measures of pension benefits based on current contributions and changes in accrued pension benefit rights. In our preferred specifications we find evidence for perfect compensating wage differentials for both occupational DB and DC pension scheme benefits.
Also included in: UBS Pensions Series 042.
