Teacher Pension Plan Incentives, Retirement Decisions, and Workforce Quality

As states attempt to staff public school classrooms with qualified teachers, primary attention has focused on educator preparation and early career retention. Far less research has examined the staffing consequences of turnover induced by teacher pension plans. This paper makes use of a unique longitudinal data file with performance measures for all public school teachers in Tennessee. Descriptive analysis finds that higher quality teachers are less likely to retire for a given age and experience. To better understand the effects of pension plan incentives on workforce quality, we estimate a structural retirement model that explicitly allows for different work-retirement preferences for high and low quality teachers. We find that high quality teachers have a lower disutility for teaching as compared to retirement. Given that it costs less to keep high as compared to low quality teachers on the job, we use the structural estimates to simulate the effect of retention bonuses targeted to the former. One year retention bonuses produce an additional year of high quality teaching at a cost of roughly $40,000.