Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-26T16:03:19.998Z Has data issue: false hasContentIssue false
  • English
  • Français

The trade-off between pension costs and salary expenditures in the public sector

Published online by Cambridge University Press:  10 January 2020

Dongwoo Kim ,
Cory Koedel  and
P. Brett Xiang
Dongwoo Kim
Affiliation:
Economics, Texas Christian University, Fort Worth, Texas, USA
Cory Koedel*
Affiliation:
Department of Economics and Truman School of Public Affairs, University of Missouri, Columbia, Missouri, USA
P. Brett Xiang
Affiliation:
Department of Economics and Truman School of Public Affairs, University of Missouri, Columbia, Missouri, USA
*
*Corresponding author. Email: koedelc@missouri.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine pension-cost crowd out of salary expenditures in the public sector using a 15-year data panel of state teacher pension plans spanning the Great Recession. While there is no evidence of salary crowd out prior to the Great Recession, there is a shift in the post-recession years such that a 1% (of salaries) increase in the annual required pension contribution corresponds to a decrease in total teacher salary expenditures of 0.24%. The effect operates through changes to the size of the teaching workforce, not changes to teacher wages. An explanation for the effect heterogeneity pre- and post-recession is that public employers are less able to shield the workforce from pension costs during times of fiscal stress. This problem is exacerbated because unlike other benefit costs, such as for health care, pension costs are countercyclical.

Keywords

Pension costspension crowd-out of salariespension incidenceteacher pensionsH75J32I22
Type
Article
Information
Journal of Pension Economics & Finance , Volume 20 , Issue 1 , January 2021 , pp. 151 - 168
Copyright
Copyright © Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anand, P (2017) Health insurance costs and employee compensation: evidence from the national compensation survey. Health Economics 26, 1601–1616.CrossRefGoogle ScholarPubMed
Backes, B, Goldhaber, D, Grout, C, Koedel, C, Ni, S, Podgursky, M, Xiang, PB and Xu, Z (2016) Benefit or burden? On the intergenerational inequity of teacher pension plans. Educational Researcher 45, 367–377.CrossRefGoogle Scholar
Baicker, K and Chandra, A (2006) The labor market effects of rising health insurance premiums. Journal of Labor Economics 24, 609–634.CrossRefGoogle Scholar
Belvedere, MJ (2016) Pension pipe dreams put taxpayers on hook: Analysis. CNBC (04.11.2016).Google Scholar
Bertrand, M, Esther, D and Sendhil, M (2004) How much should we trust differences-in-differences estimates? Quarterly Journal of Economics 119, 249–275.CrossRefGoogle Scholar
Biggs, A (2011) An options pricing method for calculating the market price of public sector pension liabilities. Public Budgeting and Finance 31, 94–118.CrossRefGoogle Scholar
Biggs, A (2018) Public Sector Pensions Assume Record-High Investment Returns. Forbes (12.04.2018). Retrieved on (02.18.2019) at: Available at https://www.forbes.com/sites/andrewbiggs/2018/12/04/public-sector-pensions-assume-record-high-investment-returns/#4c4547a46ec5.Google Scholar
Brown, JR, Pollet, JM and Weisbenner, SJ (2015) The in-state equity bias of state pension plans. NBER Working Paper No. 21020. National Bureau of Economic Research: Cambridge, MA.CrossRefGoogle Scholar
Chingos, MW and West, MR (2015) Which teachers choose a defined contribution pension plan? Evidence from the Florida retirement system. Education Finance and Policy 10, 193–222.CrossRefGoogle Scholar
Clark, RL, Hanson, E and Mitchell, OS (2016) Lessons for public pensions from Utah's move to pension choice. Journal of Pension Economics and Finance 15, 285–310.CrossRefGoogle Scholar
Clemens, J and Cutler, DM (2014) Who pays for public employee health costs? Journal of Health Economics 38, 65–76.Google ScholarPubMed
Costrell, RM (2015) School Pension Costs Have Doubled Over the Last Decade, Now Top $1,000 per Pupil Nationally. Available at http://www.teacherpensions.org/blog/school-pension-costs-have-doubled-over-last-decade-now-top-1000-pupil-nationally.Google Scholar
Costrell, RM and Podgursky, M (2010) Distribution of benefits in teacher retirement systems and their implications for mobility. Education Finance and Policy 5, 519–557.CrossRefGoogle Scholar
Even, WE and Macpherson, DA (2014) What do unions do to pension performance? Economic Inquiry 52, 1173–1189.CrossRefGoogle Scholar
Fitzpatrick, M (2015) How much do public school teachers value their pension benefits? American Economic Journal: Economic Policy 7, 165–188.Google Scholar
Friedberg, L and Webb, A (2005) Retirement and the evolution of pension structure. Journal of Human Resources 40, 281–308.CrossRefGoogle Scholar
Glaeser, EL and Ponzetto, G (2014) Shrouded costs of government: the political economy of state and local public pensions. Journal of Public Economics 116, 89–105.CrossRefGoogle Scholar
Goldhaber, D and Grout, C (2016) Which plan to choose? The determinants of pension system choice for public school teachers. Journal of Pension Economics and Finance 15, 30–54.Google Scholar
Kan, L and Aldeman, C (2014) Uncovered: Social Security, Retirement Uncertainty, and 1 Million Teachers. Policy Report. Washington, DC: Bellwether Education Partners.Google Scholar
Koedel, C and Podgursky, M (2016) Teacher pensions. In Hanushek, EA, Machin, S and Woessmann, L (eds), Handbook of the Economics of Education, Vol. 5. Amsterdam: Elsevier Science, pp. 281–304.Google Scholar
Koedel, C, Ni, S and Podgursky, M (2013) The school administrator payoff from teacher pensions. Education Next 13, 8–13.Google Scholar
Koedel, C, Ni, S and Podgursky, M (2014) Who benefits from pension enhancements? Education Finance and Policy 9, 165–192.CrossRefGoogle Scholar
Lubotsky, D and Olson, CA (2015) Premium copayments and the trade-off between wages and employer-provided health insurance. Journal of Health Economics 44, 63–79.CrossRefGoogle ScholarPubMed
McGee, J and Winters, MA (2013) Better Pay, Fairer Pensions: Reforming Teacher Compensation. Center for State and Local Leadership. The Manhattan Institute.Google Scholar
Munnell, AH, Aubry, J-P and Cafarelli, M (2015) How Did State/Local Plans Become Underfunded? State and Local Pension Plans 42.Google Scholar
Novy-Marx, R and Rauh, J (2009) The liabilities and risks of state-sponsored pension plans. Journal of Economic Perspectives 23, 191–210.CrossRefGoogle Scholar
Novy-Marx, R and Rauh, J (2011) Public pension promises: how big are they and what are they worth? Journal of Finance 66, 1207–1245.CrossRefGoogle Scholar
Novy-Marx, R and Rauh, J (2014) The revenue demands of public employee pension promises. American Economic Journal: Economic Policy 6, 193–229.Google Scholar
Petrella, D and Pearson, R (2019) Gov. J.B. Pritzker's administration considering selling state buildings and land to pay for pensions. Chicago Tribune (02.14.2019).Google Scholar
Public Plans Database (2001–2015) Center for Retirement Research at Boston College, Center for State and Local Government Excellence, and National Association of State Retirement Administrators. Available at http://publicplansdata.org/public-plans-database/download-full-data-set/.Google Scholar
Schmitz, K (2016) Are Teacher Salaries Flat because of Changing Workforce Demographics? Teacher Pensions Blog (07.06.2016). Available at http://www.teacherpensions.org/blog/are-teacher-salaries-flat-because-changing-workforce-demographics.Google Scholar
Snyder, TD, De Brey, C and Dillow, SA (2018) Digest of Education Statistics 2016, NCES 2017–094. Washington, DC: National Center for Education Statistics.Google Scholar
Tucker, J (2017) California Schools May Face Cuts Amid Skyrocketing Pension Costs. San Francisco Chronicle (01.23.2017). Available at http://www.sfchronicle.com/bayarea/article/California-schools-may-face-cuts-amid-10873046.php.Google Scholar
Weingarten, R (2017) Flawed Bellwether Education Report on Teacher Pensions. American Federation of Teachers Memorandum (05.22.2017). Available at https://www.aft.org/sites/default/files/memo_bellwether-report_052217.pdf.Google Scholar
Yin, Y and Boyd, D (2018) Analyzing the Interplay Between Public-Pension Finances and Governmental Finances: Lessons from Linking an Economic Model to a Pension Fund Model. Working paper prepared for the Brookings Municipal Finance Conference (07.17.2018).Google Scholar
Supplementary material: File

Kim et al. supplementary material

Kim et al. supplementary material

Download Kim et al. supplementary material(File)
File 67.2 KB