The Agenda

Andrew Biggs on EPI’s Wisconsin Study

Thankfully, Andrew Biggs has offered a more detailed take on Jeffrey Keefe’s Wisconsin study. I really hope that people who’ve highlighted Keefe’s thought-provoking work link to Biggs’s post, as I think it would be of great benefit to readers interested in weighing the debate. 

A quick summary, just to make sure that you don’t manage to escape from here without getting some of Biggs’s insights:

(1) Biggs derives a lower salary penalty than EPI, of -5 rather than -11 percent. And controlling for firm size is tricky, as it compares Wisconsin’s public workers with workers in Wisconsin’s biggest private companies. Before my father worked for New York state, he worked for a wide variety of small firms, including restaurants, a company that made neon signs, and a car service. A lot of these were fly-by-night operations that weren’t as stable as, say, GM.

(2) The EPI study calculates benefits for the East North Central Census Division rather than Wisconsin alone, and Wisconsin workers apparently get better benefits than other states in the region. This seems like a pretty important distinction.

(3) EPI’s benefit measures are pegged to what employers actually pay rather than what employees actually get. “[W]hat matters is that employees effectively receive those higher returns whether the investments pan out or not. Adjusting for the differences in implicit returns to pensions would increase total Wisconsin compensation by around 4 percent.” So Biggs’s salary penalty is almost gone.

(4) Then there is the small matter of retiree health benefits. The EPI study doesn’t factor in the value of retiree health benefits, yet I think it’s safe to say that a lot of people would be willing to pay a premium for the security and convenience they offer.

The value of retiree healthcare can vary significantly. For instance, most run-of-the-mill Wisconsin state retirees are offered the right to buy into the employee plan. This provides an implicit subsidy, since they’re buying at rates calculated for the working-age population rather than their own health risk. The value of this is equal to a percent or so of extra pay every year. Other employees, such as Milwaukee teachers, have almost all their premiums paid for them. Actuarial reports list these protections as costing over 17 percent of salaries, meaning that for these workers EPI’s approach would miss a lot of benefit income.

To his credit, Biggs acknowledges that we don’t have great data on this question. Because I’m very close to a number of retired public employees, I have an anecdotal sense of the value of this particular benefit. 

(5) Biggs closes with a really significant benefit that adds a fair bit:

In a given year, a state/local worker has less than one-third the chance of being fired or laid off as a private worker. 

One assumes that more risk-averse people would pay quite a bit for this benefit, while less risk-averse people might prefer trying their chances in another domain. 

I would be so delighted to see an exchange between Keefe and Biggs, and to see people covering these issues take Biggs’s analysis into account. 

Recommended

The Latest