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

Christian Weller ()

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

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 pensions; benefit design; public employee effectiveness (search for similar items in EconPapers)
JEL-codes: H75 J33 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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