Research suggests public sector should reexamine how pensions impact recruiting and retaining teachers, public workers

The findings of three academic studies raise questions about the effectiveness of governments using public pensions to recruit and retain public sector workers. Instead, the studies suggest public pensions may serve as a barrier to workers’ mobility and have a negative impact on the labor supply of public employees.

Two of the studies used a simulation to help understand the consequences of enhancing defined benefit pension plans for workforce longevity and quality. A simulation is a simplified model that mimics real-world scenarios. It allows researchers to analyze hypothetical situations, manipulate variables that may not be possible in real-world settings, and study the consequences of those manipulations. Using simulations instead of observational data has several advantages when studying public pension reform. 

First, simulations can isolate the effect of a specific change from the effects of more complex changes in plan rules. Second, simulations allow scholars to predict the long-term consequences of changes, where typically, it would take many years to see the full effect of the reform. Third, simulations allow researchers to estimate the impact of alternative policies simply by changing the model’s parameters. 

The first study, “Teacher Pension Enhancements and Staffing in an Urban School District,” by Shawn Ni, Michael Podgursky, and Xiqian Wang in 2021, examined the impact enhanced pension benefits had on teacher staffing in a large school district. The report found that the pension benefit enhancements did not improve teacher recruitment or retention. The authors used pension rule changes in 1999 applied to St. Louis public school teachers, which resulted in increased expected pension wealth for active teachers. Simulations of retirement behavior for representative senior teachers point to shorter completed teaching spells (the duration a teacher works in a particular position or school) and earlier retirement age due to the pension benefit enhancements. The report “found moving from the post-1999 [pension plan] to a DC-type [defined contribution-type retirement] plan would extend the teaching career of a representative senior teacher by roughly two years.” 

Another study, “Teacher Pension Plan Incentives, Retirement Decisions, and Workforce Quality,” published by the same authors in 2020, took a broader view of pensions in the public sector and found that pension incentives had little impact on the decisions of workers or workforce quality. In this study, the authors try to understand better the impact of pension benefit changes on teacher quality in Tennessee. The authors noted that other factors, such as job security and work-life balance, were more likely to influence a public employee’s decision to remain with their employer. 

This study suggests that pensions are not a significant driver of recruitment and retention in the public sector. Similar to the previous paper, the authors used a simulation method, and their model allowed for different work-retirement preferences for varying quality of teachers (using a teacher evaluating system). The paper observes that quality teachers are naturally more reluctant to retire and tend to prefer to keep teaching and that retirement plans and compensation play a minor role in high-quality teachers’ decisions on when to retire. They even find that improvements to pension benefits have a slightly negative effect by pushing high-quality teachers to retire sooner. All retirement and compensation variables have minimal impact on these decisions, requiring extremely high financial commitments from governments, i.e., taxpayers, to buy very few additional years from quality teachers, they found. The study concludes:

“Enhancements to traditional [pension] plans accelerate teacher retirement and reduce average teacher quality, whereas defined contribution (DC) plans have the opposite effect. Under the current plan, targeted retention bonuses would delay retirement of high-quality teachers at relatively modest cost.”

Finally, “Pension Reform and Labor Supply” by Andrew Johnston and Jonah Rockoff studies the impact of pension reform on the labor supply of public school employees in Texas from 2000 to 2021. The Dec. 2021 study is based on data from the Texas Education Agency and covers all public school employees in the state during this period. The authors used regression analysis to examine the relationship between a cost-reducing pension reform and labor supply, controlling for other factors that may affect the labor supply, such as age, experience, and education level. They found that public pension reform had a negligible impact on the labor supply of public sector employees in Texas, with the reforms actually increasing worker retention by 1-2 percentage points. They also found that the pension reform had no impact on the quality of the teaching workforce. The study concludes:

“The [pension] reform has small positive effects on worker retention, probably because the reform makes early retirement less attractive. A body of work suggests that pay cuts result in lower morale and productivity. Another suggests the cuts implemented would elicit greater effort by raising the stakes of dismissal. Using measures on worker output, we find that the reform is not associated with declines in achievement. The results represent a rare opportunity to examine similar workers working in the same setting who yet were part of different pension regimes.”

While public pensions may be seen as a way to incentivize employees to remain with a single employer, the reality is that pensions often hinder mobility of today’s workforce and may have a negative impact on the labor supply of public sector employees. It is important to note that retirement benefits are not the only factor affecting recruitment and retention in the public sector. Employees often say other factors, such as job security, work-life balance, salary, health care, and other benefits, are crucial in attracting and retaining employees. 

In light of the findings in these three reports that public pension plans do not impact public employees’ decisions in the way policymakers may have believed, public sector employers should consider alternative recruitment and retention strategies, such as offering more competitive salaries, better work-life balance, and career advancement opportunities.