Cyrus Grout

Which plan to choose? The determinants of pension system choice for public school teachers

This paper examines a natural experiment in which Washington State teachers were offered the opportunity to choose between enrolling in a traditional defined benefit (DB) plan and a hybrid plan with DB and defined contribution (DC) components. We find plan preference is weakly related to estimates of the relative financial benefits of being in either the DB or hybrid system and strongly related to teacher age. Importantly, we also find that the majority of teachers prefer the hybrid plan, and that teachers opting into the hybrid plan tend to be more effective based on student output measures of teacher productivity. These results suggest that policy shifts toward pension systems that include DC options do not necessarily make teaching a less desirable profession, particularly for the most productive employees.

Screen Twice, Cut Once: Assessing the Predictive Validity of Applicant Selection Tools

Despite their widespread use, there is little academic evidence on whether applicant selection instruments can improve teacher hiring. We examine the relationship between two screening instruments used by Spokane Public Schools to select classroom teachers and three teacher outcomes: value added, absences, and attrition. We observe all applicants to the district (not only those who are hired), allowing us to estimate sample selection-corrected models using random tally errors and variation in the level of competition across job postings as instruments. Ratings on the screening instruments significantly predict value added in math and teacher attrition, but not absences—an increase of one standard deviation in screening scores is associated with an increase of about 0.06 standard deviations of student math achievement, and a decrease in teacher attrition of 3 percentage points. Hence the use of selection instruments appears to be a key means of improving the quality of the teacher workforce.

Crossing the Border? Exploring the Cross-State Mobility of the Teacher Workforce

Due to data limitations, very little is known about patterns of cross-state teacher mobility. It is an important issue because barriers to cross-state mobility create labor market frictions that could lead both current and prospective teachers to opt out of the teaching profession. In this article, we match state-level administrative data sets from Oregon and Washington and present evidence on patterns of in-service teacher mobility between these two states. We find levels of cross-state mobility that are drastically lower than levels of within-state mobility, even when accounting for proximity to the border. These findings are consistent with the hypothesis that there are significant penalties to cross-state mobility that may be attributable to state-specific licensure regulations, seniority rules, and pension structures.

Pension Choices and the Savings Patterns of Public School Teachers

This paper examines the savings behavior of public school teachers who are enrolled in a hybrid pension plan that includes a defined contribution (DC) component. Few states have incorporated DC features into teacher pension systems and little is known about how providing teachers with greater control over deferred compensation might affect their savings behavior—an important determinant of retirement security. We find the retirement savings choices of teachers—how much they opt to contribute to a DC retirement account—to be generally consistent with that of their peers in the private sector. In particular, age and salary are positively correlated with contribution rates, and contribution rates increase with teaching experience. Importantly, our analysis of retirement wealth suggests that Washingtons hybrid plan is likely to provide a level of retirement security for a typical teacher that is comparable to or greater than that provided by the states pure defined benefit plan.

Benefit or Burden? On the Intergenerational Inequity of Teacher Pension Plans

Most public school teachers in the United States are enrolled in defined benefit (DB) pension plans. Using administrative microdata from four states, combined with national pension funding data, we show these plans have accumulated substantial unfunded liabilities—effectively debt—owing to previous plan operations. On average across 49 state plans, an amount that exceeds 10% of current teachers’ earnings is being set aside to pay for previously accrued pension liabilities. To the extent that the costs of the unfunded liabilities drag on teacher compensation, they may exacerbate problems of teacher recruitment and retention. We briefly discuss three policy changes that could end or reduce the accumulation of unfunded liabilities in educator pension plans: (1) transition teachers to defined-contribution retirement plans, (2) transition teachers to cash-balance retirement plans, and (3) tighten the link between funding and benefit formulas within the current defined-benefit structure.

Pay or Waive: An Economic Assessment of Property Owner Compensation Laws in the United States

Land-use regulations are contentious everywhere because of their potential negative effects on private property values. In recent years, so-called pay or waive compensation legislation was passed in a number of US states, requiring governments to compensate property owners for losses due to land-use regulations or grant exemptions from the regulations in lieu of compensation. We provide an overview of the compensation statutes in six US states, discuss the economic issues raised by the statutes, and examine the effects of the statutes in practice. Although these laws require that “just compensation” be estimated accurately and consistently, measuring the effects of land-use regulations on property values is extremely challenging in practice. We find that rather than providing relief to property owners unfairly burdened by land-use regulations, the compensation statutes appear primarily to discourage local governments from developing and implementing land-use regulations. (JEL: Q24, R52)

Why make it hard for teachers to cross state borders

Barriers to mobility, particularly those imposed by state-level licensure procedures have received growing attention in the media and in reform discussions. Much of this attention is driven by shortages of teachers in some regions and subject areas and the fact that barriers to mobility make it more difficult for states to address such shortages by drawing on whatever surplus of labor may exist out of state. But there are reasons to expect that lowering barriers to mobility would be beneficial to the teacher labor market even in the absence of shortages. To the extent that teachers value locational flexibility, lowering barriers to mobility could make the teaching profession more desirable to prospective entrants and reduce attrition among experienced teachers who may opt out of the profession following a move to a new state. The authors describe how licensure procedures and pension systems impose costs on teachers who cross state borders, discuss the evidence on whether teachers are responding to these disincentives to mobility, and consider possible reforms that would lower barriers to teacher mobility.

Pension Structure and Employee Turnover: Evidence from a Large Public Pension System

Public pension systems in many U.S. states face large funding shortfalls, and policymakers have considered moving toward defined contribution (DC) pension structures in the interest of reducing the likelihood of future shortfalls. Concerns exist, however, that such changes might increase levels of employee turnover. The empirical evidence on the relationship between pension structure and turnover is mixed, and is quite limited in the case of public-sector plans. The authors study a single class of public-sector employees (teachers) who are enrolled in either a traditional defined benefit (DB) plan or a hybrid DB-DC plan during overlapping periods of time. Contrary to conventional wisdom, the authors find little evidence that the introduction of the hybrid plan increased employee turnover; in fact, they find that turnover is lower among teachers who transferred out of the DB plan into the hybrid plan. Employers may benefit by shifting the debate away from plan structure per se and toward a discussion of how to provide employees with pension plans they will highly value.