State and local public employees are undercompensated, according to a new Economic Policy Institute analysis. The report, Debunking the Myth of the Overcompensated Public Employee: The Evidence, by Labor and Employment Relations Professor Jeffrey Keefe of Rutgers University, finds that on average, state and local government workers are compensated 3.75% less than workers in the private sector.
The study analyzes workers with similar human capital. It controls for education, experience, hours of work, organizational size, gender, race, ethnicity and disability and finds that, compared to workers in the private sector, state government employees are undercompensated by 7.55 percent. Local government employees are undercompensated by 1.84 percent. The study also finds that the benefits that state and local government workers receive do not offset the lower wages they are paid.
Back in June, AEI’s Andrew Biggs had a very good article debunking yet another academic article that claimed that state and local employees are underpaid. Biggs attached also a good chart and explained how all these studies get their misguided results.
I’m hesitant to put a total value on these unfunded promises, given the multiple moving parts and haphazard state of the data. But if public-sector workers are promised pension benefits that should require another 60 percent of wages to cover and retiree health benefits that should require an additional 9 percent of wages, then total effective compensation is almost 50 percent higher than you would conclude based solely on what government currently pays its employees. That’s more than enough to make up for Bender and Heywood’s 11 percent gap in what government employers currently pay relative to the private sector, and would leave state and local workers almost one-third better paid overall.
Now, there may be some reasons to scale these estimates back a bit. But the generosity of public-sector pension and retiree health benefits and the degree of underfunding mean that looking only at what government employers currently pay toward benefits isn’t representative of what government employers—and the taxpayers—ultimately will pay for these benefits.
Thanks to Anthony Sanders for the pointer.