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Debate Closed: Public and Private Pay Is Comparable (1996)In recent years, the American Legislative Exchange Council (ALEC), a right-wing public policy group, has fueled the perception that public workers are overpaid by issuing and updating a report that concludes that public employees are a "protected class." The report was initiated at a time when the national job market was soft, and many people were losing jobs, receiving small or no wage increases, or negotiating wage reductions. Thus, the notion that government workers were somehow getting ahead of private sector workers was used to infuriate taxpayers, feed anti-government sentiment, and bolster the case for privatization. But are ALEC's conclusions accurate? Garbage In, Garbage Out ALEC has published several editions of its report, each time failing to correct flaws that made the first one both misleading and wrong. The reports compare compensation for all public sector employees to compensation for all private sector employees. The authors have never compared compensation for similar jobs.
Moreover, ALEC's reports fail to account for major differences in the distribution of occupations in the public and private sectors. Professional, technical, and service occupations represent a large share of state and local government employment, and they are usually paid more than the blue collar and sales positions that are prevalent in the private sector. The following chart shows that professional, technical, and service occupations comprise about one-fourth of the private sector, while accounting for more than half of the jobs in the public sector. Sales occupations comprise 14 percent of private sector employment but are totally absent from the public sector.
Looked at somewhat differently, the public sector consists mostly of "white collar" jobs, which tend to pay more. Roughly two out of three public workers are in white collar occupations compared to just half of private sector workers. Blue collar occupations represent just over one in ten government jobs, but still account for three out of ten private sector jobs. Getting It Right
More recent studies have found that public and private employees' wages are about the same. They also have identified examples of public workers earning less than their private sector counterparts. Recent data from the U.S. Department of Labor's Bureau of Labor Statistics (BLS) shows public workers to be roughly on par with their private sector counterparts. Comparing benefits -- which vary widely between the two sectors -- has proven somewhat more difficult. The Economic Policy Institute released a briefing paper in 1993 by Dale Belman and John Heywood entitled, "The Truth About Public Employees -- Underpaid or Overpaid?" It contained the following conclusions:
Steven Gold and Sarah Ritchie, of the Center for the Study of the States, compared similar positions within the two sectors. Using data collected from the National Association of State Personnel Executives and the Council of State Governments, Gold and Ritchie found that positions requiring fewer specialized skills (clerical, data entry and manual labor jobs), paid at least as much in state government as in the private sector. However, for higher level positions and those requiring specialized training (engineering and medicine, for instance) they found a disparity, with state workers earning less than their private sector counterparts. Wages: Similar, Not Different
In measuring the differences between wages and salaries paid in the public and private sectors, one should compare apples-to-apples. The BLS cautions against making broad compensation comparisons between the public and private sectors. Detailed BLS data, reported in the National Summary of Occupational Pay in the United States for 1994, shows that compensation levels are comparable for similar job titles in the two sectors. 1994 National Summary of Average Pay
Note: Occupational levels start at Level 1, unless indicated. 1994 National Summary of Occupational Pay
Note: Occupational levels start at Level 1, unless indicated. In an article on compensation in the public and private sectors, BLS concludes: "For white-collar jobs, the 1994 national estimates show that private-industry employers usually paid workers in professional and administrative occupations higher salaries than state and local governments. Higher pay, however, for many technical and clerical positions existed in the public sector." Comparing Benefits
Just as there is no simple way to compare wages for the entire population of public and private sector workers, it is equally difficult to compare benefit packages offered in the two sectors. Some insight can be gained from BLS's Employee Benefit Survey for 1993-94 which compares the percent of public and private sector full-time workers participating in selected employer-provided benefit plans:
Historically, public employees have received more comprehensive health care benefits than private sector workers. However, public employees have increasingly been moving into less costly HMOs and PPOs and are now required to pay for larger portions of their premiums. With these recent trends, public employees find themselves with benefits comparable to those offered in the private sector. While both the private and public sectors provide life insurance for roughly the same percentage of employees, the coverage is not always comparable. For example, private employers frequently provide group life coverage that pays out a multiple of a worker's salary. Public employers are more likely to provide a policy that pays a lump sum. The prevalence of defined benefit pensions is the biggest advantage public employees have over private sector employees. Yet, nearly one-third of all public employees are not eligible for Social Security benefits and many rely solely on their pensions for retirement income. For example, a public employee earning $35,000 when he/she retires with 30 years of service who is not eligible for Social Security might get an average annual pension equal to 60 percent of final earnings. If that worker retired from a mid-size or large private company, his/her pension plus Social Security would average 59 percent of final salary. Public sector employers also have changed the way they finance pensions. Since the 1970s, public employee pensions have steadily moved away from pay-as-you-go to an actuarial-based reserve system that mirrors the pension funds of private companies. In recent years, state and local governments have occasionally adjusted their actuarial assumptions to reduce pension contributions in order to balance budgets or pay for tax cuts. Since public employers are not governed by the federal Employee Retirement Income Security Act of 1974, (ERISA) the adequacy of funding for future obligations cannot be taken for granted by state and local government workers. Many state and local governments now face unfunded liabilities in the millions of dollars. So, while public employees may have the theoretical advantage of widespread pension coverage, the ability of their employers to actually pay benefits when they come due is not as certain for public workers as it is for private workers. Conclusion
ALEC's conclusions were derived from flawed research that exposed the organization's ideology. According to recent research, when similar public sector and private sector occupations are compared, compensation is comparable. The only advantage public workers may enjoy relative to workers in the private sector is better pension coverage. Given their lack of Social Security coverage, this single advantage does not put public workers ahead of their private sector counterparts. |
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