Oregon Public Sector Workforce: The Cost of Employee Replacement, Evidence of Labor Shortage

The Service Employees International Union Local 503 (SEIU) is a public sector union that operates in Oregon. SEIU retained AEG to analyze the projected net savings or costs associated with an unanticipated spike in public sector employee retirement, and evidence of a current labor shortage and risk of a future labor shortage for Oregon state and local governments.

We constructed an employee replacement cost model that estimated the costs and savings associated with a wave of early retirements. Our model estimated the impact to the Public Employee Retirement System (PERS) liability, and changes in salary, benefit, and employee replacement costs and savings. We conducted a literature review to analyze evidence of a labor shortage in Oregon for certain common public sector occupations. We combined our research with data on vacancies from state government agencies to inform our analysis of where labor shortages currently exist, and where there are risks of future shortages.

We found that, if the retirement rate for active employees were to double for one year, state and local governments would save up to $140 million annually in the short term. These annual savings would decline quickly, however, after retirement rates normalized. In the long run, a spike in early retirements would add nearly $400 million to the PERS unfunded liability. Under the current payment system, the increased unfunded liability associated with a retirement spike would not be paid off until 2047.

We did not find evidence of a labor shortage for state government workers, but did find evidence of a labor shortage for local 911 dispatches, teachers, and police officers. These shortages have been exacerbated by high rates of retirement. In the future, Oregon could face challenges in hiring health care professionals and some skilled labor positions. Fourteen of the 27 occupations most susceptible to a labor shortage are found in state and local governments.