The efficiency wage effect of employer provided occupational pensions

Using new linked employer-employee data from Germany, this article provides the first evidence on the effect of employer provided occupational pensions on work engagement. Famous efficiency wage theories predict that pensions enhance effort if a risk of forfeiture of pension claims is present. Exploiting the German non-forfeiture clause for employer-provided pensions, the results are consistent with the theoretical prediction and show that pensions in combination with the risk of forfeiture exert a positive effect on work engagement. Since occupational pension claims are selectively distributed across establishments, I control for establishment heterogeneity, but point estimates remain of the same size. Conditional quantile regression estimates indicate that especially the lower end of the engagement distribution is affected, which suggests that pensions combined with the risk of forfeiture are effective to reduce incentives for shirking.