Monday, June 16, 2008

Pension and Protection

This Economist blog got me thinking about the differences between the US workforce in my generation vis a vis the last one.

So, I'm wondering how the change in how we save and contribute to our employer-sponsored tax-sheltered (kinda) retirement annuities affect the politics of trade protection. Maybe it's a stretch but a large part of the argument against trade agreements are thinking of the fifty something worker, many of whom have "defined-benefit" retirements - pensions - vest only after 5 or more years and are based on the tenure of service in the company (often times with 5- or 10-year "milestones" at which the monthly benefit takes a discrete jump). A fair case could be made that these are the folks most affected by the structural shifts brought by trade.

The generation that has followed them, saves for retirment in "defined-contribution" plans. These plans vest sooner, and usually do not require service with a single company over an entire lifetime to make a good retirment. The former plans are designed for liftime service to a company - the latter are designed for a mobile and flexible labor market. Workers who have pensions have a strong incentive to invest heavily in firm- and industry- specific knowlege and skills. These plans encourage worker loyalty, but also create the types of interest groups that would oppose changes to the economy that would render their industry skills less valueable.

I don't mean to say this in a way that "blames" workers because I feel for what their dilemma. They essentially entered into an implicit contract with their firm, industry, and town to keep their job viable while they work towards a pension that they've been promised. It may be stretch, but we've lived to see a decline in the political clout of unions as union membership has declined. As workers become more self-reliant for retirement, maybe there will be less lobbying to put up stumbling blocks to trade.

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