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Labor's Capital: The Economics and Politics of Private Pensions
Why are pension funds so large and benefits so small? This examination of the 120-year-old American system of privatized social insurance - often called, at 1.7 trillion dollars, the biggest lump of money in the world - reveals that the system fails to provide adequate retirement income security, its most prominent goal, and, in fact, its greatest influence is in supplying funds to U.S. capital markets.Linking market forces, historical movements, and social norms in the evolution of pensions, Ghilarducci's study is the first to focus on all major aspects of the system. Its trenchant analysis of the many sides of pensions and pension policy addresses questions of whom the system benefits, its direct and social costs, and the possibilities of reforms that would take into account the related problems of capital formation and retirement income.Ghilarducci describes the history of pension funds and the involvement of unions in bargaining. She takes up the "moral hazard" involved in the conflicting interests of corporations and their employees, tackling issues of information availability and inequality of pension distribution based on sex, race, and job hierarchy. And in two chapters, each focusing on corporate and union uses of pension funds, she covers such topics as tax breaks, the effect of corporate takeovers, the use of pensions to pay back debt, and the kinds of skimming that can occur despite government regulation of pension activities. Ghilarducci concludes by presenting an ideal pension plan that would benefit both employer and employee and by offering predictions about pension plans of the future. Teresa Ghilarducci is Associate Professor of Economics at the University of Notre Dame.
227 pages, Hardcover
First published June 3, 1992
16 people want to read
About the author
Teresa Ghilarducci
17 books30 followersTeresa Ghilarducci is an economist, author, and labor economist, and retirement security expert. Her widely circulated New York Times op-ed "Our Ridiculous Approach to Retirement" brought attention to her fresh and comprehensive critique of the America way of provisioning for retirement. Her book, When I'm 64: The Plot Against Pensions and the Plan to Save Them, presents her cutting-edge policy recommendations for restructuring the United States’ deteriorating retirement income security system. Her book Labor’s Capital: The Economics and Politics of Employer Pensions won an Association of American Publishers award in 1992. For the past five years, she has served as a court appointed trustee of the $50 billion retiree health care fund for ford, GM, and Chrysler retirees. Before coming The New School she was a professor at the University of Notre Dame. Dr. Ghilarducci was the 2006–08 Wurf Fellow at Harvard Law School; her research has been funded by the Rockefeller Foundation, the Alfred P. Sloan Foundation, U.S. Department of Labor, Ford Foundation, and Retirement Research Foundation.
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November 25, 2017
Labor’s Capital focus is on the evolution of pensions. Each decade introduced a variety of issues and policies that altered pension’s role, creating a variety of contradictions for pensions. Ghilarducci does a wonderful job following the evolution of pension funds from various economic perspectives and from various economic actors. With changing situations, those who win and lose with pensions also change.
From the start, pensions were very contested. From the employer point of view, they were meant to help manage labor. Although meant to inspire loyalty to the firm, it was also used as a way to replace older works with younger workers. From the employee point of view, they were meant to help in retirement, deferred wage to smooth out lifetime income and cost. Pensions meant to motivate workers, and to separate the worker from the firm. Pensions were supposed to help lower costs to the firm while at the same time have costs related to retired workers not helping the firm any more.
Using one economic analysis, pension helped reduce the cost to society for those retiring and the company. Using another economic analysis, pensions were meant to extract more labor, more surplus from the worker for the same wage. The different analysis reflects different assumptions about pensions. What is clearer, is that pensions had to be compete with social security and unions. With the increase in pensions, there was a decline in union members. Unions welcomed pensions as pensions were meant to help the worker, but than wanted to alter the pension to improve working conditions.
There were two major reasons for the growth of pension funds. Much of the growth of pension funds was due to the tax benefits. Employer contributions were exempt from taxation. The other reason was competition with social security. As social security provided the same basic service, to remain the better option and keep employees loyal, they increased the benefits.
Benefits were determined by formulas, usually by an actuary. Pensions initially were not advanced-funded. Wages were not reduced as pensions were introduced. The income of the retirees came from the current workers. Pensions were meant to be complimentary to wages, not substitute for them.
The value of benefits differed for each stake holder. Employees and unions had much higher valuations of benefits than the employers. Asymmetric information about the pension plan, regarding the contact and the benefit valuation, determined who got more benefits. Those that had more information, were able to use the pension contracts more effectively. Without the information, workers had less bargaining power and were subsidizing the pensions of others. Those that were paid highly, were the ones who had access to the information. That means that pensions, were regressive (and gender discriminant). Retirees that needed pensions more, were benefits least by the system. Unions were actively trying to gain more information about the pension plans for the worker.
Who owns the pension, the property rights issues are a major concern. The pension was used at the discretion of the management, as workers were not given property rights to their pension. Management is able to terminate funds for a variety of reasons such as the firm’s survival of disciplinary actions. Should the pensioner act in a detrimental way that impacts the firm, provisions within the pension contact at times allowed the firm to cancel the pension. Initially, firms pension employee age target for those retiring, was higher than the life expectancy of the employee. That meant that the pension would take effect only after the worker death, when the worker could not obtain the pension’s benefits.
This book expresses the history and evolution of pensions without reducing the complexity of the issues. Using a variety of economic analysis and a variety of vantage points makes this book look at the whole complex issue of pensions, rather than just a narrow view. Ghilarducci also breaks down different pension parts and approaches them with all their details. Although different economic perspectives are used, the only issue in this book is that the majority of the book is seen through the institutional approach. The Marxist and Neoclassical approaches are mentioned, but not frequently. It would be a bit better to incorporate those views a bit more thoroughly than sporadically.
From the start, pensions were very contested. From the employer point of view, they were meant to help manage labor. Although meant to inspire loyalty to the firm, it was also used as a way to replace older works with younger workers. From the employee point of view, they were meant to help in retirement, deferred wage to smooth out lifetime income and cost. Pensions meant to motivate workers, and to separate the worker from the firm. Pensions were supposed to help lower costs to the firm while at the same time have costs related to retired workers not helping the firm any more.
Using one economic analysis, pension helped reduce the cost to society for those retiring and the company. Using another economic analysis, pensions were meant to extract more labor, more surplus from the worker for the same wage. The different analysis reflects different assumptions about pensions. What is clearer, is that pensions had to be compete with social security and unions. With the increase in pensions, there was a decline in union members. Unions welcomed pensions as pensions were meant to help the worker, but than wanted to alter the pension to improve working conditions.
There were two major reasons for the growth of pension funds. Much of the growth of pension funds was due to the tax benefits. Employer contributions were exempt from taxation. The other reason was competition with social security. As social security provided the same basic service, to remain the better option and keep employees loyal, they increased the benefits.
Benefits were determined by formulas, usually by an actuary. Pensions initially were not advanced-funded. Wages were not reduced as pensions were introduced. The income of the retirees came from the current workers. Pensions were meant to be complimentary to wages, not substitute for them.
The value of benefits differed for each stake holder. Employees and unions had much higher valuations of benefits than the employers. Asymmetric information about the pension plan, regarding the contact and the benefit valuation, determined who got more benefits. Those that had more information, were able to use the pension contracts more effectively. Without the information, workers had less bargaining power and were subsidizing the pensions of others. Those that were paid highly, were the ones who had access to the information. That means that pensions, were regressive (and gender discriminant). Retirees that needed pensions more, were benefits least by the system. Unions were actively trying to gain more information about the pension plans for the worker.
Who owns the pension, the property rights issues are a major concern. The pension was used at the discretion of the management, as workers were not given property rights to their pension. Management is able to terminate funds for a variety of reasons such as the firm’s survival of disciplinary actions. Should the pensioner act in a detrimental way that impacts the firm, provisions within the pension contact at times allowed the firm to cancel the pension. Initially, firms pension employee age target for those retiring, was higher than the life expectancy of the employee. That meant that the pension would take effect only after the worker death, when the worker could not obtain the pension’s benefits.
This book expresses the history and evolution of pensions without reducing the complexity of the issues. Using a variety of economic analysis and a variety of vantage points makes this book look at the whole complex issue of pensions, rather than just a narrow view. Ghilarducci also breaks down different pension parts and approaches them with all their details. Although different economic perspectives are used, the only issue in this book is that the majority of the book is seen through the institutional approach. The Marxist and Neoclassical approaches are mentioned, but not frequently. It would be a bit better to incorporate those views a bit more thoroughly than sporadically.
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