| This study explores the relationship between the type of retirement arrangement (defined benefit or defined contribution retirement plan) a worker is entitled to and his or her work effort on the job. This is an economic and policy issue which is becoming ever more important in America as the Baby Boom cohort ages, since it relates energy spent at work (and, therefore, worker productivity) to the way in which work is compensated.;A modified, life-cycle, labor-leisure model is specified which shows that, in the absence of any type of retirement program, an individual's work effort diminishes as he or she approaches retirement age. This decline is due to decreasing marginal returns to work effort with respect to total future consumption.;The model is also used to show that a defined contribution pension plan and an individually-funded defined benefit plan will not change the pattern of work effort over an individual's work life. Ignoring taxes, other transaction costs, and vesting considerations, the only effect either plan will have on a worker's behavior is a dollar for dollar reduction in that worker's savings as plan benefits increase.;Using a game theoretic approach, however, it is shown that a defined benefit retirement plan can cause work effort to increase as an individual approaches retirement age, if pensions are funded on a group basis.;Empirical tests of the model support the hypothesis that work effort diminishes as the worker approaches retirement.;However, the model's implication that work effort increases as a worker who is covered under a group funded defined benefit plan ages is not supported by the empirical evidence. |
