Compensation Matters: The Case of Teachers


The 2008 financial crisis and ensuing recession both eroded state and local revenues and increased the demand for public services. In response, governments have looked to cut benefits to their workers in order to reduce pension costs, with many of those cuts aimed at new employees.

To assess the impact that cuts to pension benefits may have on the public sector workforce, this brief examines how pension cuts within the public sector affect the quality of newly hired teachers. The brief’s findings reinforce the importance of a competitive compensation package in attracting and retaining the talent needed for essential public services. Key findings include:

  • Many public sector pension plans have recently cut pension benefits for new hires, thereby reducing compensation.
  • One proxy for teacher quality is the average SAT score at a teacher’s undergraduate institution.
  • School districts with higher wages and/or higher pensions are able to hire teachers from institutions with higher SAT scores.
  • Cutting compensation for new teachers will likely reduce applicant quality. School districts offering higher wages and pensions were able to hire teachers with higher average SAT scores.
  • Benefits were found to be as important to younger hires as they were to older workers.

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