Public Pension Cuts and Competitiveness

April 12, 2018

Center for State and Local Government Excellence

Public pension systems play an important role as workforce management tools. In addition to wages and health benefits, pensions assist states and localities in recruiting, retaining, and retiring their high-quality workforces.

This brief explores the effects of pension reforms (introduced between 2005 and 2014) on state and local government competitiveness in the labor market, for both new and existing public servants. One of the central findings is that, especially for new hires, the implementation of pension reform hampered governments’ ability to attract new employees. This is important to note in an environment where governments are experiencing increases in retirements and are competing for talent at a time when unemployment rates, especially for those with college degrees, are relatively low.

However, these results should be interpreted with some caution. Fiscally stressed governments probably cut wages, hiring, and health insurance at the same time as pensions. The analysis tried to control for these factors, but the available data were not always very precise, and it is possible that additional personnel policies changed during the period that were not accounted for. While future research should continue to explore the effect of pension cuts, the results mentioned above indicate that states and localities should at least consider how benefit cuts might affect worker recruitment and retention.

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