Government pay lower than private sector?

State and local government workers earn less than comparable workers in the private sector, a new study by two economics professors finds, even when pension and other benefits are included.

The study commissioned by two public employee-connected research groups contradicts comparisons in the “popular press” that show government work pays more than the private sector.

The media compares average pay and benefits, the study released last week said, which misses the point that the average public-sector worker and the average private-sector worker have different education levels and different job duties.

Compensation specialists have repeatedly shown that the average state and local government worker has “more education, more tenure and more responsibilities,” said the study by Keith Bender and John Heywood of the University of Wisconsin-Milwaukee.

Nearly half of state and local government workers, 48 percent, have completed college, said the study of workers nationwide. Only a little more than a fifth of private-sector workers, 23 percent, have a degree.

Many of the most common state and local government jobs require higher education: teachers, social workers, nurses and university professors. In Michigan, more than half of the state jobs require that applicants have at least a bachelor’s degree.

“Thus, the fact that public sector workers receive greater average compensation than private sector workers should be no more surprising than the fact that those with more skills and education earn more,” said the study.

A number of previous academic studies, using the proper methodology, are said to have found that state and local government pay and benefits are less than for comparable workers in the private sector.

The new study finds that state workers earn 11 percent less and local government workers 12 percent less than comparable private-sector workers. The pay gap has grown during the last 15 years as government jobs fell farther behind the private sector.

Adjusted for higher public-employee benefits, the new study said the gap is 6.8 percent for state workers, 7.4 percent for local government workers.

“Unfortunately, explanation of the standard of comparability and its measurement rarely makes it to the popular press,” said the new study, mentioning that USA Today reported that public-sector pay averaged $11.90 an hour more than private-sector pay.

The new study was commissioned by two non-profit research groups formed in 2007 as, among other things, public debate continued on switching new public employees to the 401(k)-style individual investment plans common in the private sector.

The Center for State and Local Government Excellence was created with financial support from ICMA-RC, which sells various retirement financial products to the public sector.

The National Institute on Retirement Security was formed by the Council of Institutional Investors, the National Association of State Retirement Administrators, and the National Council on Teacher Retirement.

The new academic study, titled “Out of Balance? Comparing Public and Private Sector compensation over 20 years” draws a firm conclusion about the finding of a widening pay gap.

“These implications lead to the policy prescription that now is not the time to advocate for large-scale rollbacks in the compensation of state and local workers,” said the study. “Although the current recession calls for equal sacrifice, the long-term pattern indicates that state and local workers are not, on average, overcompensated.”

An opinion article in the Wall Street Journal last March, not mentioned in the study, makes a comparison similar to the USA Today averages: $39.66 per hour in total compensation for state and local government workers, $27.42 for private-sector workers.

But the Journal article also talks about a major form of compensation not covered in the new study — the “long-term benefit commitments” made to government workers for pensions and retiree health care.

Gov. Schwarzenegger and others who say we have a “pension crisis” are not talking about current costs only. A main cause of their alarm is the projected growth of costs in the future to pay for benefits promised current workers when they retire.

Most public pension systems, particularly after the stock market crash, are far from being fully funded. Higher annual payments from employers are scheduled, which in part will pay for the current years of service.

Another form of “compensation” for current work that will not be paid until the future: retiree health care. The state and many local governments are not setting aside money now to pay for the health care promised workers when they retire.

A governor’s commission estimated two years ago that state and local governments in California have an unfunded liability of at least $118 billion over the next 30 years for their current retiree health care promises.

Most private employers, if they offer a retirement plan, provide a 401(k) that might have a current contribution similar to a pension. But the 401(k) leaves the employer with no future cost, while current-year public pension costs could continue to grow.

Yet when the new study concludes that state and local government workers earn less total compensation than comparable workers in the private sector, even when pensions and other benefits are included, it’s only looking at current costs.

“The data on fringe benefits we used (of which pensions are part) measure the current cost to employers (both public and private),” Professor Heywood replied to a question via e-mail.

“To the extent that public costs of pensions change in the future, these measures would change,” he said. “As you note, we made no attempt to forecast these changes. The study thus represents a ‘snapshot’ of the current state of comparability between sectors.”

Four years ago, the state released its first attempt in two decades to compare state and private-sector compensation. The private data came from surveys in which businesses agreed to participate only if anonymous, keeping competitors in the dark.

The comparison of “benchmark” job classifications found that state worker total compensation was higher than the private sector for clerical jobs, accountants, custodians, electricians, stationary engineers and analysts, but lagged in medical occupations.

The state Department of Personnel Administration listed several concerns about the study: an incomplete analysis, less detail about private than public-sector jobs, and the use of only salaries not benefits in “job-by-job comparisons” with the private sector.

The introduction to the state study contained some history. Before a new law in 1978 allowed state workers to form unions and bargain for labor contracts, the State Personnel Board collected “labor market salary data” each year.

“The information they compiled provided the basis for the State Personnel Board’s annual recommendation to the Legislature on employee compensation,” said the introduction.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 4 May 10

26 Responses to “Government pay lower than private sector?”

  1. Dr. Mark H. Shapiro Says:

    It looks like the myth that state and local government workers here in California are overcompensated is just that — a myth.

  2. James McRitchie Says:

    Pay may actually begin to reach parity as the public sector pays less and less for employees in comparison to private sector. When I started to work for the State 40 years ago, we attracted many Stanford and Berkeley graduates to beginning level analyst positions. When I took my entrance exam approximately 15% of applicants passed the test.

    I had two masters degrees. Now, it would seem that many many analysts haven’t even graduated from college. While a few of these employees are very bright, many are not and they just don’t have the tools to properly regulate nano particles and other complex issues. Our society has placed too much value on gambling through Goldman Sachs and not enough on building a sustainable economic system.

  3. OCO Says:

    It looks like the myth that state and local government workers here in California are overcompensated is just that — a myth.
    ===========

    No, it looks like a public union hack agency just got their lunch eaten by the truth.

    Please show me where a GED can get a $200K+ comped job in the real world Dr. Mark Shapiro-like cop and ff.

    Still waiting.

    Didn’t think so.

  4. Sherry Says:

    Still Waiting,

    How precious is life? $220k + camped job etc cannot replace the lost of a loved one that was doing their job. How many private sector jobs require a person to put their life on the line?

    Didn’t think so . . .

  5. Stevefromsacto Says:

    $200K for firefighters and police officers? Pray tell, OCO, what are you smoking?

    You obviously don’t want to be confused with the facts. They might intrude on your closed mind.

  6. Tim Says:

    OCO –

    Because you asked, this is a link to an article that shows you where someone with a GED (or less) can make “$200K+comped job (?) in the real world.”

    http://finance.yahoo.com/career-work/article/107139/CEOs-Without-College-Degrees?mod=career-leadership

    These indiviudals seem to be doing quite well for themselves. When you’re done reading it, perhaps you should rethink you definition of the “real world.” Public employees do the dirtiest, nastiest, most dangerous jobs in the world to make the rest of our lives safer and much easier than they would be otherwise. In the “real world,” fire, crime, disease, pestelence, sewage, and trash are a constant threat to pbulc safety. Moreover, without pollution management, transportation management, and public utilities, the “real world” would grind to a hault.

  7. jay Says:

    Well OCO, According to your facts, I guess you should be a cop or a firefighter.

  8. Geeker Says:

    Sherry-

    OK I will bite.

    I will start with the GAS station attendants in rough neighborhoods? And pray tell us how much do they make? And how are their lives not so important as police and fire men?

  9. Dr. W.C. Wiseley Says:

    I think a quote from Krugman might suffice for now:

    When I first began writing for The Times, I was naïve about many things. But my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs.” PAUL KRUGMAN, 12/13/09

  10. OCO Says:

    Sherry Says:
    How precious is life? $220k + camped job etc cannot replace the lost of a loved one that was doing their job. How many private sector jobs require a person to put their life on the line?
    ===========
    OMG, are you for REAL?????

    Cop and FF are two of the safest job sin America-construction workers die at a rate 20 times that of cop. Nice try-public union misrepresentations won’t work here.

    Hey, your public union talking points may work in SacTown, but not in the rest of the world Sherry.

    What whopper are you going to toss out next Sherry-the one where cops die 5 years after retiring!! (they live monger than the rest of the general population)

  11. OCO Says:

    Stevefromsacto Says:

    $200K for firefighters and police officers? Pray tell, OCO, what are you smoking?
    ==============

    Hey, it’s the resident public employee posting, yet again.

    Steve, the annual COMP for a cop or firewhiner is actually OVER $200K per year when you include OT.

    Even without OT it is easily $200K. Since the ROI of Calpers is well under the 7.75% projected rate of return (2.41% last 10 years) it is probably closer to $300K per year (yes, those $5 million pensions they contributed nothing towards must be paid with real money-not monopoly money- by someone).

    Hey, don’t let the truth get in the wsay of a public union whopper though Steve (you never have in the past)!

  12. OCO Says:

    jay Says:

    Well OCO, According to your facts, I guess you should be a cop or a firefighter
    ================
    Sorry, Im not one of the connected groups.

    If you’re not connected in you’re not getting hired in either of those two jobs. There are easily over 1,000 qualified applicants (GED job you know) for every one open firewhiner position, so do the math jay (if your GED allows it);

    1- Family (Hi LAPD Chief Charlie Beck and 5 family members!!),

    2- Friends,

    3- Military workfare (almost every major CA PD is over 50% ex-military), and

    4- Civil rights lawsuit consent decree hires for engaging in 1 & 2 above. (Hi LASD, and your female hiring requirement under the Bouman v. Baca Consent Decree!!!).

    Statistically FF and cop jobs are relatively safe occupations. Construction jobs are far more dangerous. A florist delivery driver is TWICE as likely to die on the job than a FF or cop. Same for someone working retail sales -check it out if you don’t believe me.

  13. OCO Says:

    Tim Says:

    OCO –

    Because you asked, this is a link to an article that shows you where someone with a GED (or less) can make “$200K+comped job (?) in the real world.”

    http://finance.yahoo.com/career-work/article/107139/CEOs-Without-College-Degrees?mod=career-leadership

    These indiviudals seem to be doing quite well for themselves.
    =====================

    Bwhahahahhahahahaha……are you SERIOUSLY comparing GED gov employees with these handful of brilliant businessmen (BTW-Bill Gates has 3 years of Harvard under his belt)!!!!!! Man, that has to be one of the biggest jokes anyone has told in the history fo the world.

    Timmy-you need to QUIT your gov workfare job and go right into Stand Up with this fictional act- you would be a smash!

  14. Dr. W.C. Wiseley Says:

    Interesting OCO sites no sources for those claims.

    OCO, Is this your opinion or is there evidence of any of what you claim?

  15. jay Says:

    Actually OCO, I am a computer consultant. I work in the “real world”. I also have a computer science degree, which requires more than a pulse to acquire. As a consultant, I see many government employees that are a waste of space but a surprising equal amount that are educated and capable. I hear complaining from gov employees about how much consultants make and my reply is the same as it is to your post; if you think it is so great, stop gripping and become a consultant. Likewise, if I want a great pension, I can work as a government employee. But this us vs. them mentality is just pure crap.

    Get it?

  16. Tough Love Says:

    Not one more taxpayer dime should be used to fund a Public Sector pension until those pensions for CURRENT, as well as NEW employees, are reduced to a level no greater than than of the AVERAGE PRIVATE SECTOR taxpayer.

  17. ReilleyFam Says:

    Sadly, at this point in history facts are irrelevant and no matter what the issue both sides just yell their pre-determined position with no regard to facts. Both sides do it and even when faced with facts they just attack the methodology or the funding source, etc. No one can be believed and no one can be expected to be objective or God-forbid admit the were partially/totally wrong.

    I think this site is utterly biased against any/all pension and could not be capable of objectivity in any case. I think others are the same whether right or left oriented. We might as well just have another civil war and winner take all because consensus, compromise and resolution are gone forever. We can all be very smug in our correctness while society crumbles.

  18. Brian Says:

    thanks for sharing. I recommend Salary Explorer for those who want to comapare their salaries. Hope that helps.

  19. BOB Says:

    Funny, folks talk about pensons for retired cops and firefighters…….I wonder how many of the private sector go to work each day and wonder if they are gonna die today. Think about it. Try that on for size for thirty years of working unknown origin fires and long nights where the scum of the earth lives………..responding to death and distruction. Try that on for size…………….for thirty years IF you make it. I personally have attended up to five (5) funerals of fallen police in just one year officers killed in the line of duty trying to protect the public, the public they serve. Wow, their families live in the same fears…..devistating times. Yeah, Ged or more qualifies for a police academy but, desire to serve mankind drives the individual……………..In my opinion there is no price too high to pay for my safety and my loved ones…………

  20. phil Says:

    BOB,

    Why don’t you donate 100% of your salary then? Obviously, their is a point where the price is too high to pay for your safety…that’s why we are the right to bare arms to defend ourselves. Get a gun like I have.

    The argument here is NOT about whether someone should be able to save money for retirement or receive some medical benefits in retirement…it’s about what the fair PRICE is. It’s the AMOUNT of those benefits, the growth of those benefits over time, and the guarantees that they must be paid before everyday services that are at issue. Don’t you know how much they have grown over the past 20 years?

  21. Unemployed WASP Says:

    BALONEY!!!

  22. Ankur Singhal Says:

    its is really a good discription about private sector and govt. sector
    i got so much knowledge about every one so according to me every play there own role to there own place .but my decision always goes towords govt sector .i love to do the work forr govt..

    Thank you

  23. Ankur Singhal Says:

    it is really a great discription about private sector and govt sector .i got so much about each sector. according to me each sector play there important role in there own place. But my decision always goes to govt sector .
    i love to do job for govt.

  24. John Says:

    If government workers think they are doing us a favor, quit your job and try your luck in the private sector…..You will be crying for your cushy gov’t job back in no time…Problem is if you quit, there would be hundreds or thousands willing to do your gov’t job for much less money and willing to fund their own 401 K like the private sector to boot!

    The Anger in America hopefully sees this disconnect!

  25. JM Says:

    I would like to know where these 200k cop and ff jobs are. I am a ff with 31 years and I make 75k a year, 25k when I started 31 years ago. And where I am requires a fire science degree, a state FF license and a state EMT license. Both licenses have to be renewed every 2 years through CEU’s.

    Just to set the record straight farmers are the most likely to get killed on the job. Cops and Firefighters are 3 times more likely to be killed on the job than the general public and have a life span 7 years less than the general public.

  26. john Says:

    its funny because we all know what they mean “more educated” they mean some social science degree phd that they are trying to compare to some physics phd in the private sector. We all know the social sciences RUN for the government likes its Francisco in 49

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