Do Public Pensions Help Recruit and Retain High-Quality Workers?

Alicia Munnell, Jean-Pierre Aubry, and Geoffrey Sanzenbacher
Publication Date: 
October 2014

Recruitment is a key issue in the public pension debate. While pensions have virtually disappeared from the private sector over the past decade, almost all public sector employers still offer defined benefit pension plans. Public sector wages are offset by retirement benefits, and many argue that recent benefits cuts will affect worker retention and quality. In this Center for Retirement Research brief, the authors examine whether state and local employers who offer pensions recruit and retain higher quality workers and whether benefit cuts affect worker quality.

The authors use private sector wage potential as a measure of worker quality. They compare the wage difference between workers leaving the public sector for a private sector position and workers entering the public sector from the private sector. Under the study’s assumptions, a worker capable of obtaining and maintaining a higher private sector wage is a higher quality worker. For example, a worker leaving for a higher-paying private position who is replaced by an entering worker with a lower private sector wage indicates a gap in quality. The state is essentially unable to replace the departing employee with a worker of the same quality.

According to these measures, the authors find that state and local governments face a gap in worker quality. However, public sector plans with more generous pensions had smaller quality gaps and presumbly maintain a higher-quality workforce. The authors found that reductions in pension plan generosity would result in an increase in the quality gap. (The least generous plans had smaller quality gaps than medium generous plans; the cause of this is unclear and requires further research.)

Overall, the authors caution against benefit cuts because doing so may reduce the quality of state or local government workers.