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Retirement System Characteristics and Compensating Wage Differentials in the Public Sector

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  • Ronald G. Ehrenberg

Abstract

This paper presents evidence that a trade-off exists between wages and certain characteristics of retirement systems in the public sector. Cross-section econometric estimates for uniformed municipal employees, based upon data from two national surveys of municipalities, suggest that, other things equal, an increase in the contribution made by uniformed employees to their retirement system leads to a compensating increase in their salaries, while retirement systems with more “generous†characteristics are associated to some extent with lower salaries. The estimates also indicate that the extent of retirement system underfunding is related to employers' and employees' perceptions of the probability that promised retirement benefits will not be fully paid and that these perceptions too are reflected in compensating wage differentials. The author concludes that pension reform legislation in the public sector will be likely to have an impact on public sector wages and, therefore, careful consideration should be given to the design of such legislation.

Suggested Citation

  • Ronald G. Ehrenberg, 1980. "Retirement System Characteristics and Compensating Wage Differentials in the Public Sector," ILR Review, Cornell University, ILR School, vol. 33(4), pages 470-483, July.
  • Handle: RePEc:sae:ilrrev:v:33:y:1980:i:4:p:470-483
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    Cited by:

    1. Johnson, Richard W., 1997. "Pension Underfunding and Liberal Retirement Benefits Among State and Local Government Workers," National Tax Journal, National Tax Association, vol. 50(1), pages 113-42, March.
    2. David G. Lenze, 2009. "Accrual Measures of Pension-Related Compensation and Wealth of State and Local Government Workers," BEA Working Papers 0054, Bureau of Economic Analysis.
    3. Paige Qin & Michael Chernew, 2013. "Compensating Wage Differentials and the Impact of Health Insurance in the Public Sector on Wages and Hours," NBER Chapters,in: State and Local Health Plans for Active and Retired Public Employees National Bureau of Economic Research, Inc.
    4. Ehrenberg, Ronald G & Schumann, Paul L, 1984. "Compensating Wage Differentials for Mandatory Overtime?," Economic Inquiry, Western Economic Association International, vol. 22(4), pages 460-478, October.
    5. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    6. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883.
    7. Robert L. Clark & Joseph F. Quinn, 1999. "Effects of Pensions on Labor Markets and Retirement," Boston College Working Papers in Economics 431, Boston College Department of Economics.
    8. Steven G. Allen & Robert L. Clark & Daniel A. Sumner, 1986. "Postretirement Adjustments of Pension Benefits," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 118-137.
    9. Herman B. Leonard, 1987. "Investing in the Defense Work Force: The Debt and Structure of Military Pensions," NBER Chapters,in: Public Sector Payrolls, pages 47-78 National Bureau of Economic Research, Inc.
    10. Johnson, Richard W., 1997. "Pension Underfunding and Liberal Retirement Benefits Among State and Local Government Workers," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(1), pages 113-142, March.
    11. Haynes, Jonathan B. & Sessions, John G., 2013. "Work now, pay later? An empirical analysis of the pension–pay trade off," Economic Modelling, Elsevier, vol. 30(C), pages 835-843.

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