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

Author Info

Listed author(s):
  • 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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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
Handle: RePEc:uma:periwp:wp270
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Keywords: Public pensions; benefit design; public employee effectiveness;

Find related papers by JEL classification:

  • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
  • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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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(7-8), pages 798-812, August.
  2. Leora Friedberg & Michael T. Owyang, 2004. "Explaining the evolution of pension structure and job tenure," Working Papers 2002-022, Federal Reserve Bank of St. Louis.
  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. Robert M. Costrell & Michael Podgursky, 2009. "Peaks, Cliffs, and Valleys: The Peculiar Incentives in Teacher Retirement Systems and Their Consequences for School Staffing," Education Finance and Policy, MIT Press, vol. 4(2), pages 175-211, April.
  6. 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.
  7. Montgomery, Edward & Shaw, Kathryn, 1997. "Pensions and Wage Premia," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 510-522, July.
  8. 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.
  9. 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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