Do deferred benefit cuts for current employees increase separation?

• Published in: Labour economics 2021-12, Vol.73, p.102081, Article 102081
• Main Authors: Quinby, Laura D., Wettstein, Gal
• Format: Article
• Language: English
• Subjects: Pensions; Public workers; Retiree health insurance; State and local; Teachers; Turnover
• ISSN: 0927-5371; 1879-1034
• DOI: 10.1016/j.labeco.2021.102081

•In 2005, the state of Rhode Island retroactively cut deferred benefits (pensions and retiree health insurance) for non-vested employees, including K-12 teachers.•The reform significantly increased the separation rate of affected employees.•Nevertheless, the elasticity of separations with respect to the cuts was small, inconsistent with highly competitive labor markets.•In particular, teachers’ separations were even less elastic than those of other employees, suggesting that prior studies of teachers’ labor supply elasticities with respect to deferred benefits may not be generalizable to other public workers. This study examines whether deferred benefit cuts increase worker separation. The analysis utilizes a 2005 reform to the Employees’ Retirement System of Rhode Island (ERSRI) that reduced benefits for ERSRI members who had not vested by 2005, and did not affect high-tenure ERSRI members and municipal government employees. A triple-differences research design yields an elasticity of employer-specific labor supply with respect to deferred benefits of 0.28. Although state employees were more sensitive to benefit cuts than teachers, low elasticities for both groups suggest that the labor market for public employees is not highly competitive.