THE IMPACT OF PENSION BENEFITS ON THE DISTRIBUTION OF EARNED INCOME

Using standard measures of income inequality and detailed pension bene fit information on participants in the 1983 Survey of Consumer Finance s (SCF), the authors investigate how pension benefits affected the dis tribution of earned income. The results suggest that private pensions increased annual income inequality (relative to inequality observed in the distribution of wage income) by only about 2% among all employed individuals, but by 21% among unionized workers. Further analysis indi cates that private pensions raised annual income inequality primarily by increasing the rate of return to tenure, possibly through pension ' 'backloading'' (setting accruals to grow when earnings rise near retir ement) and the increasing incidence of pensions with age. Private pens ions had little effect on estimates of the distribution of expected li fetime income, but the addition to the analysis of social security ben efits (public pensions) strongly reduced inequality in that distributi on.