Thursday, April 29, 2010

New Report Comparing Public and Private Compensation

As reported by CNN Money, the Center for State and Local Government Excellence looked at 20 years of data compiled by the National Labor Bureau (NLB) to fact check the pervasive belief that government salaries are unsustainable because they are out of line with private sector salaries. This belief is based on anecdotal evidence and cherry-picked data.

The results of the study have been published as “Out of Balance? Comparing Public and Private Sector Compensation over 20 Years.” Bullet points from the report’s Executive Summary:
  • Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23% of private sector employees have completed college as compared to about 48% in the public sector.
  • Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants such as education and work experience. State workers typically earn 11% less and local workers 12% less.
  • During the last 15 years, the pay gap has grown - earnings for state and local workers have generally declined relative to comparable private sector employees.
  • The pattern of declining relative earnings remains true in most of the large states examined in the study, although there does exist some state level variation.
  • Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local employees than for comparable private sector employees.
The CNN Money article challenges beliefs championed by factions who stand to gain from crippling governmental agencies by scapegoating and removing government workers from their staffs. The article is reproduced here because it is unlikely to receive wide media attention, and you may miss it.


Government jobs not so cushy
By Chavon Sutton, staff reporter, April 28, 2010: 3:33 PM ET

NEW YORK (CNNMoney.com) -- State and local workers earn less than their private sector counterparts and the pay gap is widening, according to a report released Wednesday.

Public workers earn 11% to 12% less than workers in private companies, according to a joint study from the Center for State and Local Government Excellence and National Institute on Retirement Security.

The report, which analyzed 20 years of data from the Bureau of Labor Statistics, also found that the pay gap has generally widened over the last two decades, as private compensation moved higher while earnings for state and local workers fell.

"The big divergence began to occur in the late 1990s," said John S. Heywood, a professor in the economics department at University of Wisconsin-Milwaukee and co-author of the report. "It's an issue."

Researchers say the make-up of public workers could be a primary driver for the gap. According to the study, because state and local employees tend to be older, they're less likely to leave their positions, which could keep salaries stagnant.
"The kinds of employment relationships in the public sector tend to be long term," said Keith A. Bender, associate professor of economics at the University of Wisconsin-Milwaukee and co-author of the report. "People in the private sector are more likely to turn over, looking for the highest return."

Still, while public sector workers are better educated -- 48% have college degrees versus 23% in the private sector -- the hard cash hasn't followed. Public employees, instead, see more in the way of benefits.

According to the study, benefits such as healthcare and retirement programs, comprise 32.7% of total compensation for public sector workers, compared to 29.2% in the total private sector. Larger private companies tend to be more in line with the public sector.

Even when accounting for these benefits, though, total compensation is still 6.8% to 7.4% lower on average for state and local employees.

"For a long time, there has been a compensation trade-off in public sector jobs --better benefits come with lower pay as compared with private sector jobs", said Beth Almeida, executive director of NIRS. "This study tells us that is still true today."

As the jobs market slowly improves, a brain drain to the private sector, potentially out of state, coupled with the recently passed$17.7 billion jobs bill, which includes tax incentives for businesses that hire, could make it harder for public sector employers to attract top talent.

The Center for State and Local Government Excellence's president, Elizabeth Kellar, said that there is a "looming workforce crisis" in the public sector, as a wave of retirement and low pay collide, leaving holes in many highly skilled slots.

"Hiring managers told us that, despite the economy, they find it difficult to fill vacancies for highly skilled [public sector] positions such as engineering, environmental science, information technology and health care professionals, " said Kellar. "The compensation gap may have something to do with this."

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