Big headlines come across my desk each morning, but none more sensational than this one from Wednesday: “Bloated public sector needs a crash diet” (The Examiner). As I skimmed the article, I read: “While much of the private sector has laid off workers, frozen pay and cut capital investment, public sector employees have lived high on the tax-fattened hog.” This editorial is just one of many causing a stir about public compensation as the recession tightens its grip. The most infamous story came from Bell, California, where the city of 37,000 paid several top employees egregious salaries, including $800,000 to the chief administrative officer. While this kind of abuse is out of the ordinary, it does raise a fair question about public compensation.
In a series of articles, USA Today (most recently on August 10, 2010) similarly asserts that public sector employees are overcompensated compared with their private sector counterparts. Their analysis compares the salaries of similar occupations in each sector, accountants to accountants, for example. While this approach may seem logical, a new report, commissioned by the Center for State and Local Government Excellence (CSLGE) and the National Institute on Retirement Security, declares that the reality is that 80 percent of private positions do not have direct public sector equivalents.
For the 20 percent of occupations that allow comparison, then, USA Today relays only the raw salary differences that suggest higher earnings for state and local workers. This means that their analysis fails to factor in other qualifying factors of comparison between employees, like education level, years of experience, training, and skill sets. So while both USA Today and the new CSLGE report confirm that public employees do, in fact, earn more on average than private sector workers, the public sector workforce earns this higher average salary because the average employee is better educated and has more experience. Once these factors are included in compensation calculations, the latter explains that state and local government employees earn less total compensation than their private sector counterparts with similar education, training, and work experience.
In fact, the CSLGE report discovered that state and local sector employees are twice as likely as their private sector counterparts to have a college or advanced degree. The major driver in this pattern is that government workers have jobs that demand more education, like teachers, university professors, nurses, and social workers. In other words, state and local government employees earn less than they would if they took their skills to the private sector.
How much less? In 2008, state and local workers averaged 11 percent and 12 percent smaller salaries, respectively, than similarly qualified private sector employees. The report determines that while benefits compose a slightly larger share of total compensation in the public sector, the difference is not dramatic (4%), especially in comparison to larger private sector firms. With benefits factored in, state and local employees still earned an average of nearly 7 percent and 7.4 percent less, respectively. This trend holds true across and within some the nation’s largest states, including New York, California, Michigan, Pennsylvania, Illinois, and Texas. Not only that, but public sector compensation has generally declined relative to the private sector over the last twenty years.
In sum, the CSLGE report dispels several longstanding beliefs about government compensation. It examined U.S. Bureau of Labor Statistics data spanning the last quarter century and included several important qualifying factors into their the analysis of the raw data. This context is critical. While I promote independent analysis by the media, improper context sabotages a perfectly good article. So when Wednesday’s Examiner proffered its prescription for tackling the climbing federal deficit – “Freezing government salaries would be a good place to start” – it did not ruin my morning coffee.