Main Street

Myth-Debunking: Are Public Sector Workers Overpaid?

Major and timely new report from EPI (PDF):

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%).

There are, however, substantially different approaches to staffing and compensation between the private and public sectors. On average, state and local public-sector workers are more highly educated than the private-sector workforce; 54% of full-time state and local public sector workers hold at least a four year college degree compared to 35% of full-time private-sector workers. State and local governments pay college-educated labor on average 25% less than private employers. The earnings differential is greatest for professional employees, lawyers, and doctors. On the other hand, the public sector appears to set a floor on compensation. The compensation of workers with a high school education is higher for state or local government employees, when compared to similarly educated workers in the private sector.

Benefits are also allocated differently between privateand public-sector full-time workers in the United States. State and local government employees receive a higher portion of their compensation in the form of employerprovided benefits, and the mix of benefits is different from the private sector. Some benefits are more generous in the public sector, but it is a serious error to imagine that comparability requires that each and every element of compensation is the same. What is important when considering both the employer-provided benefits and direct pay is whether state and local government workers have a total compensation package that costs what they would receive if employed in the private sector. It is the total cost of the compensation package—not the mix of cash and benefits—that is important in making a comparison.

There’s a lot more—it’s a 14-page report—but the significant takeaway is right there at the top: public sector workers are slightly undercompensated (considering pay and benefits) compared with private sector workers.

There’s something else really important in the middle paragraph I quoted, though:

State and local governments pay college-educated labor on average 25% less than private employers. The earnings differential is greatest for professional employees, lawyers, and doctors. On the other hand, the public sector appears to set a floor on compensation. The compensation of workers with a high school education is higher for state or local government employees, when compared to similarly educated workers in the private sector.

I’d argue that floor is a big part of the reason public sector workers are under attack. Corporations have worked long and hard to destroy the compensation floor for workers with high school diplomas, just lower it into the basement. So they really, really don’t want any reminders walking around that a janitor could be paid a living wage. That undermines their whole racket.

The fact that public sector workers are compensated differently helps the anti-worker warriors. They can pick things out selectively, pointing to a pension here, a health care plan there, a raised floor under their feet, and suggest that these combine to create a different picture than they actually do. That’s been a successful tactic for them. But what we need to realize, all of us, is that the end goal is to lower the floor for everyone.

Tags: public sector workers