In The Struggle For Public-Sector Workers, Pensions Help

The job market in the United States has been drum tight since the onset of the Covid-19 pandemic. Despite a sharp rise in unemployment during the initial pandemic shutdown, the labor market has recovered over the four years since. Even with the most recent jobs report, the unemployment rate remains at historically low levels, averaging 3.8 percent since January 2023. Additionally, prime-age workers (ages 25-54) are participating in the labor force at strong levels.

This labor market means employers still are competing for employees. Workers, especially those with lower-incomes, have seen their wages rise as a result. But there are other forms of compensation and benefits that employers can leverage to compete for talent. A defined benefit (DB) pension plan has long been a tool used by employers to recruit and retain employees, which has proven particularly effective for public-sector workers like teachers, police officers, firefighters, and sanitation workers.

The overwhelming majority of local, state, and federal government workers today have access to a pension. In some places, the pension plan accompanies a mandatory defined contribution (DC) plan for a hybrid arrangement. In some jurisdictions, public employees are offered a choice between participating in a DB or a DC plan. Regardless of the structure, a pension plan is available for most public workers.

Pensions Promote Public Service Careers

There is a good reason why public-sector employers continue to offer pensions: these plans keep workers in their jobs for careers. Some public-sector jobs, like accountants or attorneys, have direct counterparts in the private sector, so it’s relatively easy to switch between the two sectors. Other public-sector jobs, such as teaching, policing, or firefighting, don’t have direct private-sector counterparts, so it’s harder to find workers who have experience in those areas. Moreover, many public-sector jobs require years of training and experience for workers to reach their peak effectiveness. This training often comes with costs, and impacts the quality of public services. Public-sector employers and taxpayers therefore have a strong incentive to keep these workers for a career to get a return on their investment.

For decades, employee tenure has been longer for public jobs as compared to the private-sector. The Bureau of Labor Statistics (BLS) finds that the average tenure for a public employee is eight years compared with four years for a private-sector worker. This data is backed up by an analysis of U.S. Census Bureau data from the Employee Benefits Research Institute (EBRI), an analysis that found the median tenure for a public-sector employee in 2022 to be seven years versus four years for a private-sector employee. During the period from 1983-2022, those median tenures have remained fairly steady: public-sector tenure rose from six years in 1983 to a peak of 8.3 years in 2012, then down to seven years in 2022. For private-sector tenure, the comparable numbers were 3.5 years to 4.3 years to four years.

There’s A Pattern of Low Teacher and Public Safety Staff Turnover With Pensions

The ways in which pensions contribute to these longer tenures can be shown in two simple charts. The first chart below displays data from a sample of six public safety pension plans. It shows public safety employee turnover is higher in the first five years when workers are making decisions about whether to continue down this career path. But after about five years, turnover flattens and remains low throughout the middle years of a career until the pension plan’s retirement provisions take effect. Then, the expected increase in turnover occurs as workers begin to retire.

The same holds true for teachers. An analysis of a sample of six teacher pension plans (distinct from the six public safety plans mentioned above) again shows the same pattern. In the chart below, there is slightly higher turnover in the early career years, remarkably low turnover during the middle of a career, and then higher turnover at the career end as teachers begin to retire.

Both charts show the pension plans working as intended. Pensions help with the “three Rs” of workforce management: recruitment, retention, and retirement. Also, surveys of public-sector workers consistently show high ratings for retirement benefits similar to strong favorability for salary and health insurance. Pensions retain those workers who have committed to a career in the public sector, then help those workers transition to retirement when it is appropriate at the end of their career. It’s important to remember, however, that retirement from a public-sector job may be earlier for a firefighter or a police officer than for a teacher, due to the physical demands of the work.

The public sector likely will never out compete the private sector in pay. Private-sector employers can almost always offer a higher salary than public-sector employers in a direct competition for talent. But the public sector offers competitive benefits such as pensions, which workers want. This is true even for younger workers who value “flexibility” and change jobs frequently. It turns out, as evidenced by the data, young people today are the same as young people in the past: they move around in jobs until they find the right job. Then they want the same job features workers have always wanted: a decent salary, a sense of purpose, and retirement security. And public-sector employers know that retirement security is best achieved with a pension.