Public pensions and employment in the public sector

Abstract

State and local governments in the United States have experienced difficulties in funding the liabilities accumulated in their employees' retirement systems. As such, many state and local pension systems have made changes in their pension systems to reduce fiscal risks and lower financial costs. However, most discussion on public pensions focuses on the financial management side of the issue as opposed to how changes in public pension systems influence public employees. It is reasonable to expect that changes in benefits, contributions, and plan types in state and local pension systems would affect public employees' motivations, job satisfaction, and their decisions to join, stay, and exit the public workforce. In this chapter, we summarize empirical findings regarding pensions and motivation. We endeavor to make two contributions. First, we provide theoretical explanations of why pensions would or would not affect public employees' motivations and decisions. Second, we conduct a comprehensive literature review and summarize the empirical findings on the impact of pensions on employees' decisions.