This article estimates the effects of changes in pension plans and social security in the 1970s and 1980s on the steady state retirement of men. Work incentives associated with pension coverage and plan characteristics are calculated primarily from the 1969–79 Retirement History Study and the 1983 and 1989 Surveys of Consumer Finances. Simulations with a structural retirement model suggest that the long‐run effects of changes in pension plans and social security account for about a quarter of the reduction in full‐time work by men in their early sixties but cannot explain the reduction by those age 65.

Estimated negative substitution effects on work hours question the empirical validity of the classical labor supply model. Estimates are reconciled by allowing a dual choice of hours and effort for piecerate workers. In such a model, these negative substitution effects result from substituting on‐ and off‐the‐job leisure. We test our model using controlled experimentation on human subjects. These experiments, while not naturally occurring environments, represent real economic choices and can generate data unavailable elsewhere (e.g., effort data). The results support our model, and they have implications both for labor management and for empirical research focusing only on the hours choice.

Jobs with performance-related pay (PRP) attract workers of higher ability and induce workers to provide greater effort. The authors construct an integrated model of effort and sorting that clarifies the distinction between observable and unobservable ability and the relationship between earnings and productivity. Predictions are tested against data from the British Household Panel Survey. The PRP raises wages by 9 percent for men and 6 percent for women. Theoretical calculations show that these estimated earnings differentials represent average productivity differentials net of monitoring costs at the marginal firm using PRP but not of the disutility of additional effort expended by workers. Copyright 1999 by University of Chicago Press.