The budget impasse in Wisconsin has caused reporters and pundits to bombard Americans with statistics purporting to compare public- and private-sector pay. Left-leaning think tanks, including the Economic Policy Institute (EPI), have promulgated studies claiming that public-sector employees in any number of states are underpaid.
EPI has issued a series of papers on state- and local-government employees — covering Wisconsin, Ohio, Michigan, New Jersey, and Minnesota, with others surely to come — all concluding that public employees earn less than similar private-sector workers, even after accounting for their more generous benefits. From the Washington Post’s Ezra Klein, to Paul Krugman of the New York Times, to AFL-CIO chief Richard Trumka, left-leaning commentators have used these studies as talking points.
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But those talking points are wrong. As we showed in a recent paper, the EPI studies substantially underestimate public-sector compensation. (EPI disagreed, and we recently published a response.) Here’s what they leave out:
Overall benefits: EPI uses Bureau of Labor Statistics data on benefits, but the BLS doesn’t publish benefit data by state; rather, it groups them together by region. The EPI study on Wisconsin workers, for instance, uses benefits data for the East North Central Census Region, which includes Illinois, Indiana, Michigan, Ohio, and Wisconsin. So if Wisconsin public employees receive more generous benefits than workers in nearby states, which was part of Governor Walker’s rationale for increasing employee contributions, we wouldn’t know it from EPI’s data.
This study by HCTrends, by contrast, shows that Wisconsin workers paid 40 percent less for health coverage than do public employees in Michigan and 60 percent less than public employees in Indiana or Illinois. Likewise, Wisconsin workers contribute less toward their pensions than other public employees. The bias caused by regional grouping cuts both ways, of course, but in Wisconsin — ground zero for our nation’s labor disputes — it almost surely understates the value of public employees’ health and pension coverage.
Pensions: EPI’s approach underestimates public-employee pension benefits by around one-third, because it counts only what employers contribute today, not what employees will receive when they retire. State and local pensions invest far more aggressively than private plans, meaning that for a given level of guaranteed retirement benefits, state and local pensions put aside significantly less money today. Unlike a 401(k), of course, if the investments go sour, it’s the government — meaning, taxpayers — who bear the cost.
Simply put, if a public and a private employee received the exact same benefit, EPI’s approach would report that the public employee received significantly less.
Retiree health care: Four out of five public employees receive subsidized retiree health coverage, which allows them to retire in their 50s without having to buy insurance in the more expensive individual market. The California State Department of Personnel Administration states that “a career State employee . . . secures an additional $493,851 worth of compensation during the first 20 years of retirement.” For a Milwaukee public-school teacher, retiree health coverage is equivalent to a career-long salary increase of over 20 percent. The EPI studies treat retiree health care as if it does not exist: They simply omit any reference to it.
Job security: It’s well known that public-sector jobs offer far greater job security than the private sector, with less than one-third the chance of being fired or laid off. Economists going back to Adam Smith have believed workers will trade off compensation against job security, such that more secure employment should pay less. For Wisconsin workers, we calculated that job security was worth about an extra 9 percent of pay. For California workers, job security is worth about an extra 15 percent of pay.
In short, the EPI studies undercount pension benefits, omit retiree health coverage, and ignore the value of job security. The errors can really add up — to 30 percent more compensation, in the case of California.
Sadly, it’s easier to put out a dozen poor studies than to get a single analysis right. But many fights on public-sector pay are yet to come in states around the country. Taxpayers and their advocates need to be ready to counter false claims about government pay.
— Andrew G. Biggs is a resident scholar at the American Enterprise Institute. Jason Richwine is a senior policy analyst at the Heritage Foundation.
In the late sixties my Dad worked as a plumber and steamfitter. He was a member of the union and had always been able to work union jobs. But now he was in his fifties and was having a hard time finding work because of his age.
He took a job as a plumber for the county. He knew it was a big cut in pay, but it offered steady work, less demanding work, and excellent benefits. That is why he took the public job.
He worked there until retirement along with several other older plumbers, carpenters, electricians, and various other tradesmen. I really can't picture any of them hanging over the capital’s balcony like a bunch of baboons screaming about being picked on.
The difference was these guys didn’t go to the public job sector for a career; they went to finish off a more lucrative career or job they couldn’t do as effectively in the private sector, but could perform in the public job (mainly the maintenance of buildings.)
What a bunch of bull. 5-9% is the increase for job security? How about minus % for the fact that these legislatures are taking away job security and pay? This is a sad attempt at a biased article trying to pose as non-biased.
I got in a hot debate on this. Yes they are tax payers but they are not the tax base. You need a source of revenue before you can start hiring these people. This isn't saying that police officers and firefighters are not pillars of the community.
LameArticle ..... referring to blogger
Are you working with 2 names or do you just hate everything you come across? Do you actually think it's governments job to provide job security?
I'm really surprised that leftists would lie and manipulate to make a false point appear valid.
(Actually I would watch them do it at U.C.S.B. There's an entire industry, one of the most powerful in the world, at making leftist falsehoods appear true, as well as developing techniques to take away the right of conservatives to use certain words or describe things in a positive way, while retaining their own right to call baby murder "reproductive rights".)
The article isn't lame at all. Among other evidence, just look at turnover rates among government employees -- they're very low. People know an unusually good thing when they experience the combination of good pay, fantastic benefits and job security that public employment gives.
The great libertarian writer Frank Chodorov wrote during the McCarthy era, "If you're concerned about communists in government jobs, get rid of the government jobs." I'd update that: If you're concerned about overpaid people in government jobs, get rid of the government jobs.
I'll say that no public employee under the age of fifty (at least that I've ever met) believes that the pensions will still be in place, which means that what's being taken out now is not going to have any return.
As to job security, one of the reasons for that is that they keep downsizing by attrition, then promising the public not to cut services, which means they can't afford to lose anyone they have left on the floor. No one's job feels particularly secure.
@Lame: First, how are the legislatures taking away job security? Or pay? They aren't taking away the right to be represented by a union (which is the primary problem with the security) and the whole point of the proposal in Wisconsin was to prevent having to cut a bunch of jobs.
Second, the job security is in the here and now, not in the future. Therefore, it is worth extra pay in an analysis of current pay and benefits. Of course, if the jobs become less secure, then that percentage advantage will go away, and their compensation might be more equal to the private sector.
Bullhockey, bbots. If job cuts are obtained by attrition, that makes the remaining jobs more secure, not less.
As far as recognizing the problems with current pension funding? Welcome to the club. I haven't planned on being able to retire for a dozen years now. Between the economy keeping me from adding to my 401k and SS's imminent bankruptcy, I'll be working till I drop.
GWB
Guess you never worked at a job where the big boss says your employer needs to cut 10 postions this year but we want the same amount of work produced/achived.
Big boss don't care hows it done, just that it is done.
That means less secure jobs, when there are no one retiring, some one need to be given th epink slip.
I just wish when they did these studys they would use actual Wisconsin figures, and seperate state employee, county employee, city employees, municipal employees, public school employees.
You would get a much better understanding how the pay differs between a custodian working at a UW-collage, vers a tech school, verses a public school, verses a city.
Thats just one example, now compair snow plow drivers for each one, see how much difference in pay there is.
Do this for each type of employee and compair it to the same type in the public sector and you just might be suprised at the findings.
But it is easyer to just lump all forms of state/public employees into one group and compair their wages against the genral public and get athe much lop sided numbers you are looking for.
Any argument made by Krugman is a false argument, as he stopped being anywhere near credible and all ideology a long time ago. Anything he has to say is either a flat out lie or based upon such cherry picked data you can arrive at whatever you like as opposed to even running counter to common sense.
Paul Krugman is the dumbest liberal I can think of, and I would debate him on anything of his choosing at any time without any knowledge of the topic known to me in advance of the debate of his choosing. I would even go so far as to predict the outcome would be that I would prove he was a literal idiot that parrots his perceived reality, but lacks any facts as to actual reality on whatever topic he chose. Yes, he is that predictably delusional on every topic he decides to engage.
carlosincal is right -- what Walker is trying to do is balance his budget, keep from laying off public employees, lighten the drain on the taxpayers and enable business to move to Wisconsin to create the tax base that pays the public workers' salaries and benefits.
Who provides the jobs -- the public employees?
We appreciate what these people do, but without jobs for the private sector at some point there will be no jobs for them either. What about this do they not understand?
There is inherently a problem in comparing a large percentage of public sector employees with private employees. The private sector really doesn't have jobs like snow plow driver, codes enforcement officer, and judge. One can't even compare things like social workers because the aspect of work is quite different.
The bigger issue in my mind would be the overall employee costs for a particular department or set of responsibilities. In other words - what are the costs to clean and maintain a government building compared to a similar size and use private building?
I was an attorney for a Federal agency in Washington DC for 11 years. My salary started at $58,000 per year and topped out at $122,000 per year. I repeatedly beat major law firms in court. After losing to me in court several of those firms sought to recruit me for salaries ranging from $300,000 to $400,000 per year.
I stayed with the Federal government in order to have the latitude to do justice; to decide whether a case should be settled (a rarity); taken to court (frequent); or whether a bad manager had to be disciplined or fired. Unlike private practice, in which I had worked before, I did not have to take some frivolous case and turn dross into money to serve the bottom line by hoping the agency would settle. I could stick to what was right.
But when I hear about how I was "overpaid" it infuriates me. During my federal employment, I personally saved my agency approximately $13 million in liability per year. In 11 years I lost one case in court, but won it on appeal. I built a small organization that protected us from potential liability of over $30 million per year, at a cost of approximately $600,000 per year (salary and benefits). We earned our keep, even with both salary and benefits considered. And we did it for less than half the cost of outside counsel.
Has anyone been paying attention to the TV spots where Mr Scott Walker has been signing into law the bills passed by the republican controlled house?
Just how may pens dows it take to sign ones name?
If your Mr Scott Walker it takes 11 pens just to sign his name.
I do not know the cost of those pens, but I bet they aint cheap.
Just another example of goverment waiste by a man who claims he is trying to balance a budget.
As far as being over paid, yeah right!
I have been employed as a state employee for the past 27 years, I started out making $6.42/hour and 27 years later I make $15.91/hour
I have gone as long as 6 continous years without reciveing a pay raise in a dollar amount in my pay check.
Some of the pay raises that actualy increased my gross pay put me into a higher tax bracket and my take home pay was less than befor the pay raise.
I have been given 8 hours of vacation in lew of a money per hour pay raise.
In the last 3 years I have seen a steady decrease in my yearly gross income forced opon mw by the last democrate govenor in the attempt to balance the states budget.
State and public employee did not create the budget defect, our elected officials did, and they have been trying to balance the budget on the back of the state and public workers now for the past 6 years.
Along comes Mr Scott Walker and he wants to balance the budget and he wants it done in 1 year and the state and public workers are his scape goats this time.
Who do you think he will go after in the next budget cycle?
The public sector, thats who, by increasing the taxes he said he does not want to raise this budget.
But go ahead and blame the state and public workers, as we all know we are all over paid.
Heres another example of just how over paid state employee in my field are.
I happen to work at a university as a custodian, a janitor for those of you who dont know what a custodian is.
The last time there was an opening for a custodian postion our human resorces department ended up interviewing 15 people for the 1 postion, out of those 15 none accepted the job, so they had to intervies another 15.
They finialy found someone willing to take the job. A job that the starting pay is $11.09/hour.
It would seem that most people do not or will not work for such a small wage per hour.
Now I know there are some state employee and public sector employees that make far more per hour then that and the starting wage is a lot higher, however it would seem the general tax payer is not intrested in hearing about the low end of the pay scale where the vast majority of the work is being done, they are only intrested in hearing about the high paid ones who do little work for the most amount of pay.
So the next time some one tells you that all public workers and state workers are over paid, please take the time to look at just who they are talking about,is it the top dogs or the ones actualy doing the work.
