Labour Unemployment Insurance and Pension Asset Allocations

Страхование от безработицы и распределение пенсионных активов
Yina Liang, Paraskevi Vicky Kiosse, Monika Tarsalewska
2024-11-22

defined benefit pension plansdifference-in-differences analysisequity investmentpension investment riskunemployment insurance benefits
Abstract This paper examines the effect of unemployment risk on pension investment decisions of defined benefit pension plans. In particular, we examine whether unemployment insurance benefits affect pension investment risk. Using fixed‐effects and difference‐in‐difference analyses, we find evidence that firms take higher pension investment risk by investing more heavily in equities after unemployment insurance benefit increases. These results are consistent with the notion that firms undertake more risk when the costs of unemployment decrease. The findings are robust to a number of sensitivity tests, including a falsification test to examine the timing of the relationship between the riskiness of the pension portfolio and unemployment insurance benefits, a 3‐year window, alternative matching methods and removing firms that operate in geographically dispersed industries. Additional analyses suggests that the findings are more pronounced for firms with skilled labour and high labour intensity, while they are less pronounced when the risk of layoffs is high, in less competitive industries and highly unionized firms.
1
Fixed-effects and difference-in-differences analyses support the conclusion that lower unemployment costs increase firms’ willingness to assume pension portfolio risk.
2
Increases in unemployment insurance benefits lead firms to take greater defined-benefit pension investment risk by allocating more heavily to equities.
3
The effect is stronger among firms with skilled labor forces and high labor intensity.
4
The effect is weaker when layoff risk is high, in less competitive industries, and among highly unionized firms.
5
The relationship remains robust across falsification tests, a three-year observation window, alternative matching methods, and exclusions of geographically dispersed industries.

Defined benefit pension plans and their pension investment portfolios

The effect of unemployment risk and unemployment insurance benefit increases on pension investment risk, particularly equity allocation, across firms with different labor-market characteristics

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2024-11-22
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Authors
Yina Liang
Paraskevi Vicky Kiosse
Monika Tarsalewska
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