The Politics of Pensions

Abstract

The recent economic downturn exposed a crisis in public pensions in the United States. For decades, government officials have promised increasingly generous pension benefits to public employees and yet have consistently failed to make the contributions necessary to fund those promises. In this paper, we examine the politics of public pensions using a new dataset of state legislators’ votes on hundreds of pension bills passed between 1999 and 2011. While it is reasonable to expect that Democrats vote for enhanced pension benefits, we argue that Republicans have historically had little incentive to oppose them - and actually good reasons to go along with them: the bill for enhanced benefits doesn’t come due for a long time; pensions are hard for voters to monitor; and until very recently, pressure by public sector unions to expand benefits was not counterbalanced by interest groups on the other side. In our empirical analysis, we document a striking over-time pattern in the types of pension bills passed by state legislatures: a decade of benefit expansion nationwide was followed by a sharp shift to retrenchment starting in 2009. We also find that from 1999 to 2008, Democrats and Republicans were voting together. Only with the Great Recession, when the pension problem aroused the attention of voters and ignited the opposition of interest groups, did Republicans regularly vote against the Democrats. Thus, while today’s partisan rhetoric on public pensions would suggest that Democrats are responsible for creating the crisis, our analysis shows otherwise. In normal times, the politics of public pensions is bipartisan.

Keywords: pension, politics, party, union, state legislature