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What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness?

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  • Christian E. Weller

Abstract

Proposals exist to change public employees’ retirement benefits from defined benefit (DB) pensions. This could increase employee turnover and raise initial compensation. More experienced employees are replaced with less experienced ones, reducing effectiveness. But, new hires’ effectiveness could increase with higher compensation. We simulate the net impact of these offsetting effects and find that there is a 60% to 70% chance that effectiveness will fall relative to the effectiveness that would have prevailed without benefit changes. There could be substantial transition costs, which could increase to 0.8% of payroll in the third decade after the switch for a typical DB pension.

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File URL: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_251-300/WP270.pdf
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Bibliographic Info

Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp270.

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Date of creation: 2011
Date of revision:
Handle: RePEc:uma:periwp:wp270

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Related research

Keywords: Public pensions; benefit design; public employee effectiveness;

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References

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  1. Harris, Douglas N. & Sass, Tim R., 2011. "Teacher training, teacher quality and student achievement," Journal of Public Economics, Elsevier, vol. 95(7), pages 798-812.
  2. Leora Friedberg & Michael Owyang, 2004. "Explaining the Evolution of Pension Structure and Job Tenure," NBER Working Papers 10714, National Bureau of Economic Research, Inc.
  3. Steven G. Allen & Robert L. Clark & Ann A. McDermed, 1991. "Pensions, Bonding, and Lifetime Jobs," NBER Working Papers 3688, National Bureau of Economic Research, Inc.
  4. Steven G. Allen & Robert L. Clark & Ann A. McDermed, 1993. "Pensions, Bonding, and Lifetime Jobs," Journal of Human Resources, University of Wisconsin Press, vol. 28(3), pages 463-481.
  5. Harris, Douglas N. & Adams, Scott J., 2007. "Understanding the level and causes of teacher turnover: A comparison with other professions," Economics of Education Review, Elsevier, vol. 26(3), pages 325-337, June.
  6. Montgomery, Edward & Shaw, Kathryn, 1997. "Pensions and Wage Premia," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 510-22, July.
  7. Barry J. Nalebuff & Richard J. Zeckhauser, 1985. "Pensions and the Retirement Decision," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 283-316 National Bureau of Economic Research, Inc.
  8. Alicia H. Munnell & Kelly Haverstick & Geoffrey Sanzenbacher, 2006. "Job Tenure and Pension Coverage," Working Papers, Center for Retirement Research at Boston College wp2006-18, Center for Retirement Research, revised Oct 2006.
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