The purpose of this article is to construct a theoretical model capable of assessing the extent to which required employee contributions to a local government retirement system necessitate increased levels of employee compensation. It is found that increased compensation is required if the before-tax yield on retirement system assets is less than the before-tax yield on alternative assets that would be held by employees. It is also found that such increased levels of compensation generally take the form of increased pensions rather than increased wages. These theoretical results are compared with some recent empirical results obtained by Ehrenberg.
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References
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