Intergovernmental (Dis)Incentives, Free-Riding, Teacher Salaries and Teacher Pensions
Upjohn Institute Working Paper No. 15-220
57 Pages Posted: 12 Feb 2015 Last revised: 16 Jun 2015
Date Written: February 10, 2015
Abstract
In this paper, I document evidence that intergovernmental incentives inherent in public sector defined benefit pension systems distort the amount and timing of income for public school teachers. This intergovernmental incentive stems from the fact that, in many states, local school districts are responsible for setting the compensation that determines the size of pensions, but are not required to make contributions to cover the resulting pension fund liabilities. I use the introduction of a policy that required experience-rating on compensation increases above a certain limit in a differences-in-differences framework to identify whether districts are willing to pay the full costs of their compensation promises. In response to the policy, the size and distribution of compensation changed significantly. On average, public school employees received lower wages largely through the removal of retirement bonuses. However, the design of the policy led some districts to increase compensation, rendering the policy less effective that it might have otherwise been.
Keywords: Intergovernmental Incentives, Teacher Compensation, Teacher Retirement
JEL Classification: H75, H72, H77, J26, I21, I28
Suggested Citation: Suggested Citation