Title

Pennsylvania's municipal labor market before and after the enactment of the Municipal Pension Plan Funding Standard and Recovery Act: An empirical study

Date of Award

1990

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

Advisor(s)

John Anderson

Keywords

Accounting, Public administration, Labor economics

Subject Categories

Business Administration, Management, and Operations

Abstract

This study examines Pennsylvania's municipal labor market before and after the enactment of "The Municipal Pension Plan Funding Standard and Recovery Act" (Act 205) in 1984. This Act provided for mandatory pension plan funding (with amortization of existing deficiencies), more uniform pension plan disclosure, and a change in the allocation of state assistance to an "employee unit" basis (with police officers and firefighters each counted as two "units" and non-uniformed employees as one "unit").

The study is concerned with the "supply" and "demand" effects of pension underfunding. A wage (supply) equation is used to model the wage at which municipal employees are willing to supply their services, and an employment (demand) equation is used to model the number of public employees demanded by municipal officials and residents. This simultaneous supply and demand relationship is estimated for both 1982 and 1987.

In both analyses, pension underfunding is associated with an increased demand for the services of police and firefighters as hypothesized. The results for the non-uniformed employee category supported the opposite contention. The results also suggest that the supply reaction to underfunding differs for alternative categories of municipal employees.

Pennsylvania's municipal police officers did not exhibit a wage response to underfunding. Rather, they appear to regard wages and pension funding as two distinct bargaining issues. Pennsylvania's municipal firefighters exhibited a wage response to underfunding in the pre-Act 205 analysis (albeit based on a less informative measure of funding adequacy). Further, there was no indication that the municipal employee labor market discerned the difference in the alternative disclosure methods used in the pre-Act 205 era.

In the post-Act 205 era, firefighters also appeared to bargain for wages and funding separately. The non-uniformed employees appeared to react to underfunding in the post-Act 205 era and seek compensating wages. This result is logical and expected. Due to ample state assistance, pensions become more of a "pass-through" benefit for police and firefighters. The state assistance is noticeably less generous to non-uniformed employee pension plans and, due to improved disclosure, they (or their representatives) should now be aware of the funding status of their plans.

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