Do Pensions Matter for Recruiting State and Local Workers?

Abstract

Many state and local governments have responded to financial challenges facing their pension systems by cutting benefits or by shifting costs to employees. Will these changes make it harder for state and local governments to recruit highly skilled workers? This study explores this question by linking individual-level data from the Current Population Survey on worker transitions between the private and public sectors to measures of state and local pension generosity from the Public Plans Database. The results suggest that state and local employers with relatively generous pensions are better able to recruit high-wage workers from the private sector, but that this advantage is lost as workers are asked to contribute more from current paychecks to prefund those benefits. The findings help inform an ongoing debate over the role that state and local pensions play in shaping the public workforce.

Public-Employee Pensions and Retirements

“…On average, they will be less excited about sticking around, particularly when they can separate and receive pension income. Similarly, Quinby and Sanzenbacher (2020) find poorer recruitment efforts as these contributions are greater.…”

“…Recent research by Gorina and Hoang (2020) shows that state-level pension reforms in recent years significantly shape public-employees’ attitudes, thereby influencing recruitment and turnover. As the authors state: “the design of public retirement benefits will continue to influence the ability of the public sector to recruit and retain high-quality workforce.” Similarly, Quinby and Sanzenbacher (2020) find pensions play an important role recruiting workers into public-sector work, but the effect diminishes as employees contribute more into plans, suggesting costlier benefits have diminished personnel effects.…”

“…Pensions could aid in public management if they help attract motivated and long-term workers (see Gailmard and Patty 2007; Ippolito 1987; Lazear and Moore 1988; Munnell, Haverstick, and Soto 2007). They might work alongside job protections to help recruit and retain employees, which is why their initial growth happened around the same time as the transition from the spoils to the merit system in the early 20th century (Asseburg and Homberg 2020; Clark, Craig, and Wilson 2003; Condrey and Battaglio 2007; Lee and Wilkins 2011; Quinby and Sanzenbacher 2020).…”

“…A great deal of research shows that a dollar today is more valuable than a dollar tomorrow. A Pew survey of public employees found that a dollar of pension money is worth about 20 cents in salary (see Kahneman and Tversky 1979; Quinby and Sanzenbacher 2020). Reforms that trade off current for future money should incentivize retirement, while those that do not might push in the opposite direction, to the extent workers value deferred income.…”

“…There is extensive variation in state and local pensions, as the national government plays little role in their governance. In light of rising costs, a number of states have made reforms in recent years, generally reducing generosity and increasing contributions (Anzia 2022; Novy-Marx and Rauh 2011; Peng and Wang 2017; Quinby and Sanzenbacher 2020). Prior research has not examined pensions and retirements across numerous plans and over time, alongside these types of reforms and other “large forces” that might matter (see Roberts 2013).…”