How much do workers value future benefits?

Many workers are paid in two ways: They get a periodic salary as well as benefits such as vacation time, health insurance and retirement contributions. How do workers compare the value of today’s salary versus the value of tomorrow’s benefits? NC State University economist Mike Walden responds.

“Well, we have a new study that addressed this. And the new study specifically focused on public school teachers around the country, not just in North Carolina. And what they were looking at is sort of the old cliche, pay me now or pay me later. They wanted to know how much does someone value a promised future dollar of benefits — for example, in terms of their pension.

“That is to say that you could have an employee who says that, ‘Yea, I’ll take an additional dollar of salary now, or give me a dollar of future benefits in terms of my retirement pay later.’ That would obviously be a one-to-one.

“Well, the study found there was no way where that was reached. On average — now this is going to depend on how close people are to retirement, etc., we know that — … for the average public school teacher in this study, they found that — and this is rather shocking — employees, public school employees, only valued promised future dollars at the rate of 20 cents for each dollar.

“That is to say that if you made an offer and said, ‘We will pay you more now, but we are going to reduce retirement benefits later,’ what the — in this case — school system would only need to do is pay a school teacher 20 cents more today to reduce their promised retirement benefits by a dollar in the future.

“So that has profound implications, I think, for how we pay employees, in this instance public employees. And I think it’s something that public bodies — like school systems — need to evaluate.”

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