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The Trade-off Between Pension Costs and Salary Expenditures in the Public Sector

Author

Listed:
  • Dongwoo Kim

    (Department of Economics at Texas Christian University)

  • Cory Koedel

    (Department of Economics and Truman School of Public Affairs at the University of Missouri, Columbia)

  • P. Brett Xiang

    (Department of Economics at the University of Missouri, Columbia)

Abstract

We examine pension-cost crowd out of salary expenditures in the public sector using a 15-year data panel of state teacher pension plans spanning the Great Recession. While there is no evidence of salary crowd out prior to the Great Recession, there is a shift in the post-recession years such that a one percent (of salaries) increase in the annual required pension contribution corresponds to a decrease in total teacher salary expenditures of 0.24 percent. The effect operates through changes to the size of the teaching workforce, not changes to teacher wages. An explanation for the effect heterogeneity pre- and post-recession is that public employers are less able to shield the workforce from pension costs during times of fiscal stress. This problem is exacerbated because unlike other benefit costs, such as for health care, pension costs are countercyclical.

Suggested Citation

  • Dongwoo Kim & Cory Koedel & P. Brett Xiang, 2019. "The Trade-off Between Pension Costs and Salary Expenditures in the Public Sector," Working Papers 1913, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:1913
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    References listed on IDEAS

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    More about this item

    Keywords

    pension costs; pension liabilities; unfunded pension liabilities; pension crowd-out; countercyclical pension costs;
    All these keywords.

    JEL classification:

    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I20 - Health, Education, and Welfare - - Education - - - General

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