Pensions and Late-Career Teacher Retention

Working Paper Number: 
WP 17-08

Public school teachers retire much earlier than comparable professionals. Pension rule changes affecting new teachers can be used to close this gap in the long run, but any effects will not be observed for decades and the implications for workforce quality are unclear. This paper considers targeted incentive policies designed to retain experienced high-need teachers, of retirement age, as instruments to extend current teachers’ careers. We use structural estimates from a dynamic retirement model to simulate the workforce effects of targeted late-career salary bonuses and deferred retirement (DROP) plans using administrative data from Missouri. The simulations suggest that such programs can be cost-effective, partly because long-term pension savings offset a portion of upfront program costs. More generally, we demonstrate the utility of using structural retirement models to analyze fiscal and workforce effects of changes to public sector pension plans, since the effects of pension reforms cumulate over many years.

JEL Codes: 
J26, I45, I28