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Mandatory pension savings and long-run debt accumulation: evidence from Danish low-wage earners

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  • Andersen, Henrik Yde
  • Hansen, Niels Lynggård
  • Kuchler, Andreas

Abstract

Based on two decades of Danish register data at the individual level, this paper finds that a 1-dollar increase in pension wealth leads to a 42-cent rise in total debt for a group of low-wage earners. Collective bargaining in the labor market provides time-sector variation in mandatory pension contribution rates, which we exploit in two empirical research designs; an event study and a cross-sectional instrumental variable regression model. Both methods demonstrate that the debt rise is accompanied by increased housing wealth and homeownership rates. Together, the empirical evidence indicates that mandatory pension contributions lead to a significant increase in net wealth, as well as in gross debt.

Suggested Citation

  • Andersen, Henrik Yde & Hansen, Niels Lynggård & Kuchler, Andreas, 2023. "Mandatory pension savings and long-run debt accumulation: evidence from Danish low-wage earners," Journal of Pension Economics and Finance, Cambridge University Press, vol. 22(3), pages 371-399, July.
    • Handle: RePEc:cup:jpenef:v:22:y:2023:i:3:p:371-399_6
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