Pension Reforms, Financial Markets, and Wage Growth: Three Essays on the Political Economy of Pensions

Abstract

This dissertation comprises three essays that examine the political economy of pensions. The first essay investigates the impact of investment restrictions on pension participants in Nigeria following the transition to a defined contribution model in 2004. The study argues that restrictions on foreign investment in Nigeria ultimately harm pension participants by denying them access to high-performing securities. The essay highlights that Nigeria's regulations impede capital formation anticipated by funded pension plans by restricting pension funds' access to foreign assets and encouraging them to invest up to 80% of their assets in domestic sovereign debt. The study found that Nigerian pension funds could optimize their returns by investing at least 46.86% of their assets in global markets. The second essay examines the role of pension reforms in the development of the Nigerian financial markets. Using an error correction model (ECM), the study analyzes the influence of pension assets on prices and volatility in the stock, bond, and money markets. The results show that pension fund assets positively impact all three financial market segments in both the short and long run. The findings suggest that pension reforms have contributed to the development of the Nigerian financial markets and highlight the importance of pension funds as institutional investors. The third essay investigates the impact of declining relative real wage growth on the shift from defined benefit (DB) to defined contribution (DC) pension plans in the US private sector. The study hypothesizes a direct relationship between real wage growth and DB plan participation. Using an error correction model (ECM) and annual data from 1975 to 2021, the study finds that a decrease in the share of national income going to wages and salaries, as well as total compensation including proprietor's income, is associated with a decrease in the share of pension assets allocated to DB plans. The findings suggest that declining real wage growth has contributed to the decline of DB plans and may have implications for retirement security and income inequality.