1 Teacher Pensions and Labor Market Behavior: A Descriptive Analysis Michael Podgursky, University of Missouri - Columbia Mark Ehlert, University of Missouri- Columbia Robert Costrell, University of Arkansas – Fayetteville Center for Analysis of Longitudinal Data in Education Research (CALDER) CALDER Data Conference Washington, DC October 4, 2007.

2 Why study teacher retirements? Teacher retirements generate vacancies Teacher retirements generate costs –Teacher pensions –Retiree health insurance Incentives in retirement systems may have significant effects on labor supply and mobility –Pension system incentives are large Retirement systems can affect the quantity and quality of the teaching workforce

3 Research literature Large labor economics literature on pensions and retirements Very small literature on teachers –Furgeson, Strauss, Vogt (2006), PA teachers –Brown (2006), CA teachers –Harris and Adams(2007), CPS Absence of basic data –Type of benefits and costs (esp. retiree HI) –Parameters of systems (NEA, NASRA, Loeb and Miller, 2006) –Incentive structure of teacher pensions –Teacher labor market data SASS TFS Longitudinal state data (SEA records linked to pension data)

4 Source: Harris and Adams (2007)

5 Teacher Pensions: Some Stylized Facts Mostly state-wide systems Roughly 70 percent of teachers are in Social Security. Generally state decision. Nearly all (vested) teachers are in Defined Benefit plans. DC and CB options limited Mean retirement age is well below Social Security and Medicare ages –58 years (retired and stopped teaching, SASS TFS)

6 Incentives in Teacher Pension Systems In public sector DB pension systems accrual of pension wealth is highly non-linear and back- loaded State systems generally have sharp “spikes” in accrual rates –Pull teachers to spike –Push out after Not inherent in DB pension systems. – “cash balance” (IBM and other firms) –Can smooth spikes

7 Annual Pension = S x FAS x r(S,A) S = service years FAS = final average salary r(S,A) = replacement factor Typical DB teacher pension

8 Lots of moving parts…

9 Compute pension wealth at each year of work life Compute growth of pension wealth from an additional year of work Representative teacher –Enters at 25, continuous spell of work –Standard assumptions concerning PV of pension wealth. (see Costrell and Podgursky (2007) )

10 Increment to PV of Pension Wealth from Working an Additional Year: Missouri

11 Source: Costrell and Podgursky (2007)

12 Source: Costrell and Podgursky (2007)

13 Source: Costrell and Podgursky (2007)

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15 Ohio

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A + E ≥ 45 Full-Time Teachers N= 31, ,240 Retirements Missouri Longitudinal Teacher Data File (excluding KC and STL districts)

18 80 Distribution of Age + Experience

19 Distribution of Age

20 29 Distribution of Experience

21 Cumulative Distribution of Retirement Age: Male vs Female Median = 56 males, 57 females

22 Cumulative Distribution of Retirement Age: Rural vs Urban

23 Cumulative Distribution of Retirement Age: White vs Black

24 Cumulative Distribution of Retirement Age: High and Low Achieving Schools

25 Cumulative Distribution of Retirement Age: Elementary vs Secondary

26 Increment to PV of Pension Wealth from Working an Additional Year: Missouri r = 2.5% S ≤ 30 r = 2.55% S ≥ 31 Changed in July 2001

27 Distribution of Years of Experience at Retirement Before and After 2001 Change In Replacement Rate

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29 Distribution of ln (salary)

30 Distribution of ln (salary) Distribution of ln (pension wealth)

31 “Retired” Retired (Collecting teacher pension) Retired and not teaching “Double Dipping” –DROP –withdrawal –change pension systems –part time teaching

32 Cumulative Distribution of Teacher Retirement Ages: Teacher Follow Up Surveys, Schools and Staffing Surveys, 2001 and “Retired” = collecting pension and not teaching

33 Retirement Age in Missouri and the US: Missouri and SASS Teacher Follow Up Survey 2001.

34 Labor Market Experience of Teachers Who Retired in 2000: Percent of Teachers Working Full and Part-Time in Missouri Public Schools in Subsequent Years

35 Structure of SASS Teacher Follow Up Survey SASS Teacher Follow-Up Survey Current Teacher Survey Former Teacher Survey Collecting Teacher Pension? 5.3% (4.9% of total pop.) 91.6% 8.4%

36 Lesson Total Compensation = Current + Deferred Compensation

37 Papers at Slides at Ohio report