How Much Are Public School Teachers Willing to Pay for Their Retirement Benefits?
Public sector employees receive large fractions of their lifetime income in the form of deferred compensation. The introduction of the opportunity provided to Illinois public school employees to purchase additional pension benefits allows me to estimate employees' willingness-to-pay for benefits relative to the cost of providing them. The results show employees are willing to pay 20 cents on average for a dollar increase in the present value of expected retirement benefits. The findings suggest substantial inefficiency in compensation and cast doubt on the ability of deferred compensation schemes to attract employees.
Special thanks to Cynthia Fain, Ed Maybe, Sally Sherman and Sandra Cochran for their help with the Teacher Retirement Service data. This paper has greatly benefited from the comments of Damon Clark, Liran Einav, Gopi Shah Goda, Caroline Hoxby, William Johnson, Damon Jones, Ed Olsen, Greg Rosston, John Shoven, Sarah Turner and many conference and seminar participants. Funding from the National Institute on Aging, through Grant Number T32-AG000186 to the National Bureau of Economic Research, is gratefully acknowledged. All errors are my own. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Maria Donovan Fitzpatrick, 2015. "How Much Are Public School Teachers Willing to Pay for Their Retirement Benefits?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 165-88, November. citation courtesy of