This study explores the effect of seniority pay on employee retention in the U.S. public sector. State-government employees in Michigan transitioned from a defined-benefit pension with 10-year vesting to a defined-contribution plan with immediate vesting. Participation in either plan depends on date of hire, permitting a regression-discontinuity research design. The shift away from back-loaded retirement benefits caused an eight percentage-point decrease in the probability of remaining in state service to earn 10 years of tenure. The probability of leaving with four to nine years of tenure increased commensurately. Older, highly educated workers were highly responsive to retirement-plan incentives, whereas younger workers did not adjust their labor supply.
This research was conducted by RAND Education.
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