How Have Pension Cuts Affected Public Sector Competitiveness?


This brief explores the effects of 2005 to 2014 pension reform on state and local government competitiveness in the labor market.

Laura D. Quinby, Geoffrey T. Sanzenbacher, and Jean-Pierre Aubry
Publication date:
April 2018
Filed under:
Research Studies
Key findings:
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.
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Often lost in ongoing conversations about how to best improve the financial status of public pension systems is the important role these retirement programs fill as workforce management tools. While wages and health benefits are certainly important, pensions also assist states and localities in recruiting, retaining, and retiring their high-quality workforces.

The recent financial crisis caused many state and local pension plan sponsors to cut benefit levels. This brief explores the effects of pension reforms undertaken by state and local governments between 2005 and 2014 on these employers’ competitiveness in the labor market, for both new and existing public servants. Key findings include:

  • Common cost-cutting pension reforms included increasing the normal retirement age, reducing the monthly benefit that workers receive when they retire, requiring employees to contribute more to the pension fund, and reducing post-retirement cost-of-living adjustments;
  • Especially for new hires, the implementation of pension reform has hampered governments’ ability to recruit new employees; and
  • State and local governments should consider how pension cuts might affect recruitment and retention