Abstract
Abstract Several countries have undergone pension reforms since the 1980s. One common feature these reforms share is the shift from defined benefit (DB) pension plans to defined contribution (DC) pension plans; Taiwan’s Labor Pension Act that came into force in July 2005 adopts this feature as well. The portable individual account in a DC plan keeps job seniority accumulation from being interrupted when laborers decide to switch jobs or when their employers go out of business; thereafter, laborers virtually own the vested pension rights entitled to them and enjoy tax-deferred savings. While pension benefits were barely realizable under the DB plans, deterring laborers’ liberty of changing jobs due to seniority interruption; the pension portability that Labor Pension Act (DC plan) offers is likely to encourage labor mobility with lowered mobility costs. This paper employs two sample groups (1995-2005, 2005-2008) of Taiwan’s Quasi-Longitudinal Manpower Utilization Survey to represent laborers under DB and DC plans. An Endogenous Switching regression model is constructed and estimated with Full Information Maximum Likelihood (FIML) method to analyze mobility decision. Variables associated with structural wage differential and pension portability are created with the above estimation in order to analyze how labor mobility is affected by pension system shift. In this paper, it is shown that voluntary job separation is more frequent under the Labor Pension Act (DC plan); moreover, expected pension capital loss is proved to be the main reason for lower labor mobility under DB plans.