The implicit pension contract has provided a theoretical basis for the
observed relation between pensions, less quitting and earlier retirem
ent. But it also has encountered difficulty explaining why wages seem
''too high'' in pension firms. This anomaly has been taken by some to
imply that efficiency wages, not pension capital losses, explain why q
uitting is abnormally low in defined benefit pensions. In this paper,
I pursue an alternative explanation, that the implicit contract model
is oversimplified because it ignores supply conditions facing long-ten
ure firms. I show that once an allowance is made for compensation requ
ired by workers for entering long-term labor contracts, numerous anoma
lous empirical observations in the pension market are explicable.