Early Retirement Incentives and Student Achievement

This fascinating new study published by NBER examines whether early-retirement incentives impact student achievement. Researchers analyzed an early-retirement policy in Illinois that allowed teachers to retire early in 1992–93 and 1993–94. It was nicknamed 5+5, meaning that teachers who were at least fifty years old could purchase an extra five years of age and experience to be counted as creditable service toward their retirement benefit, so long as they retired immediately. Over the policy’s two-year life span, a full 10 percent of Illinois’s teachers—the bulk of whom were experienced—took advantage of this offer, leaving the profession. Analysts studied the test scores of the students of roughly 55,000 third-, sixth-, and eighth-grade teachers, ultimately finding that the incentive led to increased student achievement in most cases. (Why this occurred is beyond the scope of this study. It is conceivable that the lowest-quality and/or most burned-out teachers are most apt to take advantage of an incentive like this.) They also found evidence suggesting larger positive effects in disadvantaged schools. Then the analysts turned to cost. Summed across the approximately 8,000 teachers who participated in the program, the incentive resulted in total savings to Illinois districts of $550.5 million (because it’s cheaper to replace veteran teachers with rookies). However, the teachers who retired early receive pension benefits for more years than if they had retired normally. And in Illinois, it is the state, rather than the districts, that must make up the increased costs to the pension system, which totaled roughly $643 million. In short, the incentive created substantial savings to school districts by reducing teacher wages, but it still cost the state money through higher pension payments. And surprise, surprise: The analysts conjectured that lawmakers did not understand this tradeoff.