The Myth of Overcompensated Public Employees

Two new studies debunk the idea, prevalent in these days of threatened austerity, that public employees are "overcompensated." It only ever meant that they supposedly get better pay and benefits than their private-sector counterparts (though that could just mean that the private-sector undercompensates). But it turns out that it really isn't true.

The first one is from the good folks at the Political Economy Research Institute--a new study called The Public Worker Wage Penalty in New England.  Here's the abstract:

The refrain that government workers are overpaid, and taxes support outsized benefit and salary packages returns with each state and local budget season. But in their new study, "The Wage Penalty for State and Local Government Employees in New England," PERI’s Jeffrey Thompson and John Schmitt of the Center for Economic Policy Research demonstrate that in New England the reality is just the opposite. While the average state or local government worker does earn higher wages than in the private sector, this is because they are, on average, older and substantially better educated. In reality, there is a wage penalty for state and local government workers in New England of close to 3%.

Read the whole study.

And the Economic Policy Institute has a new briefing paper called Debunking the Myth of the Overcompensated Public Employee. Here's the rather wonkish abstract:

This research is timely. Thirty-seven states are struggling with substantial budget deficits. Several governors have identified excessive public employee compensation as a major cause of their states’ fiscal duress. The remedies they propose include public employee pay freezes, benefits reductions, privatization, major revisions to the rules of collective bargaining, and constitutional amendments to limit pay increases, each as a necessary antidote to the public employee overpayment malady.

The data analysis in this paper, however, indicate that public employees, both state and local government, are not overpaid. Comparisons controlling for education, experience, hours of work, organizational size, gender, race, ethnicity and disability, reveal no significant overpayment but a slight undercompensation of public employees when compared to private employee compensation costs on a per hour basis. On average, full-time state and local employees are undercompensated by 3.7%, in comparison to otherwise similar private-sector workers. The public employee compensation penalty is smaller for local government employees (1.8%) than state government workers (7.6%).

Read the whole study.  One funny thing is the part where they quote a bunch of Republican clowns sounding like Joe McCarthy trying to estimate the number of Communists in the U.S. government:

“It used to be that public employees were underpaid and
over-benefited. Now they are over-benefited and overpaid
compared to their private-sector counterparts.”
--Governor Tim Pawlenty of Minnesota
There are “two classes of people in New Jersey: Public employees
who receive rich benefits, and those who pay for them.”
--Governor Chris Christie of New Jersey
“Average government workers are now making $30,000 a
year more than the average private-sector worker.”
--Former Governor Mitt Romney of Massachusetts
“Almost every study says [government employee compensation
levels] are between 17 and 24% higher. So we have to reflect
the people we work for.”
--Mike Bouchard, Candidate for governor in Michigan

The authors' of the EPI study make this dry assessment: "After an extensive search, we were unable to locate any evidence showing that average government workers earn $30,000 a year more than average private-sector workers, nor could we find any recent studies that show public
employees earn 17% to 24% more than private-sector employees. Regardless of whether the current, former, or aspirant governors’ claims are factual or not, are they nevertheless right?"  The study concludes that they are not.  Apparently on the low salary end, workers are lucky to work in the public sector, which compensates better than the private sector does (not surprisingly, after years and years of erosion of union density there).  And overall, public sector workers make on average more, but that is largely an artifact of the fact that they tend to be better educated.  But at the higher end of the salary range--workers with the most education and experience--working in the public sector incurs a salary penalty, and one that isn't compensated for by the somewhat more generous benefits that public-sector workers receive.

--Chris Sturr