Labor Market Uncertainty and Pension System Performance

The financial market crisis has prompted policymakers to devote substantial attention to ways in which capital market risks shape pension performance, but few analysts have asked how shocks to human capital shape retirement wellbeing. Yet human capital risks due to fluctuations in labor earnings, employment volatility, and survival, can have a profound influence on pension accumulations and payouts. This paper reviews existing studies and offers a framework to think about how human capital risk can influence pension outcomes. We conclude with thoughts on how future analysts can better assess sensitivity of pension plan outcomes to a labor income uncertainty.

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