What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness?

PERI Working Paper No. 243

30 Pages Posted: 15 Feb 2012  

Christian E. Weller

University of Massachusetts Boston - Department of Public Policy and Public Affairs; University of Massachusetts Boston - Gerontology Institute; Political Economy Research Institute

Date Written: October 11, 2011

Abstract

Proposals exist to change public employees’ retirement benefits from defined benefit (DB) pensions. This could increase employee turnover and raise initial compensation. More experienced employees are replaced with less experienced ones, reducing effectiveness. But, new hires’ effectiveness could increase with higher compensation. We simulate the net impact of these offsetting effects and find that there is a 60% to 70% chance that effectiveness will fall relative to the effectiveness that would have prevailed without benefit changes. There could be substantial transition costs, which could increase to 0.8% of payroll in the third decade after the switch for a typical DB pension.

Keywords: public employees, pension design, cash balance plans

JEL Classification: H79, J24, J26, J33, J38

Suggested Citation

Weller, Christian E., What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness? (October 11, 2011). PERI Working Paper No. 243. Available at SSRN: https://ssrn.com/abstract=2004778 or http://dx.doi.org/10.2139/ssrn.2004778

Christian E. Weller (Contact Author)

University of Massachusetts Boston - Department of Public Policy and Public Affairs ( email )

McCormack Graduate School
100 Morrissey Boulevard
Boston, MA 02125
United States
2024605821 (Phone)

HOME PAGE: http://blog.umb.edu/christianweller

University of Massachusetts Boston - Gerontology Institute ( email )

100 Morrissey Boulevard
Boston, MA 02125-3393
United States

Political Economy Research Institute ( email )

Amherst, MA
United States

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