Do Pensions Enhance Teacher Effort and Selective Retention?

Theoretical rationales for employer-provided pensions often focus on their ability to increase employee effort and selectively retain quality workers. We test these hypotheses using rich administrative data on public school teachers around the pension-eligibility threshold. When teachers cross the threshold, their effective compensation drops by over 50 percent of salary due to sharply reduced pension accrual rates. Standard economic models predict this compensation reduction should decrease teacher effort and output, yet we observe no such decline. This suggests that yearly pension accruals near retirement do not meaningfully increase effort. Similarly, if pensions selectively retained better teachers, we would expect average teacher quality to decline when the retentive incentive disappears at the threshold. Instead, we find no change in the composition of teacher quality, suggesting pensions do not selectively retain higher-performing workers in late career.