This article examines the pattern of incentives for work versus retirement in six state teacher pension systems. We do this by examining the annual accrual of pension wealth from an additional year of work over a teacher's career. Accrual of wealth is highly nonlinear and heavily loaded at arbitrary years that would normally be considered mid-career. One typical pattern exhibits low accrual in early years, accelerating in the mid-to late fifties, followed by dramatic decline or even negative returns in years that are relatively young for retirement. Key factors in the defined benefit formulas that drive such patterns are identified along with likely consequences for employee behavior. The authors examine efficiency and equity consequences of these systems as well as options for reform.
Using data from the Displaced Worker Survey, a special supplement to the January 1984 Current Population Survey, the authors estimate a model of reemployment earnings for workers displaced from full-time nonagricultural jobs between January 1979 and January 1984. Median losses for workers reemployed full-time were not large, but a sizable minority of that group—mostly workers with substantial specific human capital investments—experienced large and enduring earnings losses.
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