Studies suggest teachers value salary increases more than pension benefit increases

The cost of public education is constantly scrutinized, and teachers’ compensation is often front and center in the discussion. While public education costs have risen significantly over the last few decades, teachers’ salaries have remained relatively stagnant. But the costs of teachers’ pensions have been climbing. It is therefore important to review research to compare changes in teachers’ pensions and salaries to see the possible impacts of reforms that grant individual school districts more power to determine teacher compensation.

In recent years, teachers’ pensions have become a major driver of increased costs for many state and school district budgets nationwide. Over the past 15 years, employer costs for public teacher pensions have risen sharply, from 10.5% of salaries in 2004 to 24.7% by June 2021. During the same period, employer retirement benefit costs for the private sector, which has almost entirely transitioned from pensions to individual retirement accounts, like 401(k)s, have remained nearly flat at around 10% of salaries.

This growing financial burden of pension costs, plus the overall trend of hiring more teachers and large numbers of additional non-teaching staff even as many schools are experiencing enrollment declines, is pushing many public school districts toward financial distress. That teachers’ salaries have remained stagnant while costs have skyrocketed has led to increased concerns that school districts might be unable to attract and retain high-quality educators.

In 2011, Wisconsin enacted substantial reforms to its teacher compensation and pension benefits through Act 10. The Wisconsin legislation gave the state’s public school districts complete autonomy in determining teacher compensation and allowed for direct salary negotiations with individual teachers. Act 10 also abolished the collective bargaining requirements for teacher salary schedules, granting full autonomy without union consent. The Wisconsin reform increased teachers’ contributions to their pension plans from zero to an average of 6.0% of their annual salaries after 2011, which allowed the state to improve the funding of teacher retirement benefits without having to dedicate more of its budget.

Now, with more than a decade of results following Act 10’s passage, Wisconsin provides useful data to explore the impacts these reforms had on teachers’ employment decisions.

A key finding from a 2019 study by Barbara Biasi, assistant professor of economics at Yale University’s School of Management, found that Wisconsin teachers responded more positively to changes in salaries than to equally sized changes in pensions, which suggests wage adjustments may be more effective for employers and policymakers to influence worker behavior. Biasi finds:

…these results suggests that, even for active workers who are close enough to the retirement margin, a change in current compensation is more salient (or valued differently) than a change in future retirement benefits. This finding has important implications for the design of teachers’ compensation schemes: If teachers respond differently to these two forms of compensation, shifting part of their lifetime compensation away from retirement towards employment (i.e., raising salaries and making pensions less generous) could have significant effects on teachers’ retirement decisions and, in turn, on the composition of the teaching workforce.

While the effects of pension policies are not insignificant, the report found they were more muted in their impact on teachers’ decisions to leave or retire, particularly because many employees think of retirement planning as something addressed in the long term, decades away. This insight is crucial when formulating policies that address teachers’ immediate and long-term financial needs.

Another study by Biasi, a 2018 National Bureau of Economic Research working paper, looked into the potential benefits of giving school districts more autonomy and flexibility in pay and found that higher salaries attracted higher-quality teachers, increased overall teacher quality due to the arrival of high-quality teachers from other districts, and improved student achievement. Wisconsin’s 2011 Act 10 legislation removed the requirement for collective bargaining over teachers’ salaries, which had previously been determined solely by seniority and education through negotiations between each school district and its union. This law granted school districts autonomy to decide on compensation without union approval and crucially permitted them to negotiate salaries with individual teachers. Biasi writes:

Compensation of most US public school teachers is rigid and solely based on seniority. This paper studies the labor market effects of a reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. Following the reform, some districts switched to flexible compensation and started paying high-quality teachers more. Teacher quality increased in these districts relative to those with seniority pay due to a change in workforce composition and an increase in effort.

These findings underscore that many teachers are likely more concerned with their annual salaries than with changes to their retirement plans when it comes to making decisions about staying or leaving their jobs.

It is essential for policymakers and education stakeholders to examine how teachers respond to policies concerning compensation and retirement. When choosing between pension enhancements and salary increases, it is clear that higher wages are more likely to draw in better and more committed teachers.

While it is also crucial to help ensure adequate retirement security for teachers, policymakers should keep in mind that pension benefits are not a cost-effective mechanism for recruiting and retaining quality educators, at least not in comparison to salary considerations.