New Study: State and Local Workers Earn Less than Private Sector, Even Factoring in Benefits

With unemployment in the region lingering at record levels, and job
security a wistful memory for many, it's easy to look for scapegoats.
Thus a familiar refrain-government workers are overpaid, and our tax
dollars are going towards outsized benefit and salary packages-has come
back again. But as with most scapegoating, there's not much truth to the
accusation: the reality is just the opposite. Once age and education
are factored in, state and local workers actually earn less, on average,
than their private-sector counterparts. The wage penalty for state and
local government workers in New England is close to 3%.

In their new study, "The Wage Penalty for State and Local Government Employees in New England,"
Jeffrey Thompson of the Political Economy Research Institute at the
University of Massachusetts, Amherst, and John Schmitt of the Center for
Economic Policy Research demonstrate that the average state or local
government worker does earn higher wages than the average private-sector
worker-but this is because they are, on average, older and
substantially better educated. The higher average wage in the public
sector means that the teachers, engineers, accountants, and others who
are running government offices, schools, and public services in New
England are more experienced and highly trained, on average, than
workers in the private sector. But despite these qualifications, their
pay is on average lower than that of those counterparts. Another way to
look at it is: given two workers of the same age and same level of
experience, a public sector worker earns less than a private sector
worker.

As the report's co-author, Jeffrey
Thompson, explains, "If you simply compare the wages in the public and
private sector, you end up learning more about the skill levels of those
workers than about the sector where they work. All that comparison
tells you is that state and local government workers in New England are
more highly educated and more experienced than their counterparts in the
private sector. But once you properly control for education and
experience, it becomes evident that public sector workers get lower
wages."

More than half of state and local
government employees in New England have a four-year college degree or
more, and 30% have an advanced degree. By contrast, only 38% of
private-sector workers have a four-year college degree or more; and only
13% have an advanced degree. In New England, the typical state and
local worker is also about four years older than the typical
private-sector worker.

The wage gap becomes more significant at
higher-paid professional levels. The lowest paid government workers do
earn slightly more than their private counterparts (in other words, the
state tends to pay its lowest-wage workers better than, for example,
Wal-Mart does), but for engineers, professors, and the like, the wage
penalty for working for a New England state or local governments rises
to almost 13%. These wage differences are also found across workers with
different levels of education: high school graduates in the state and
local sector in New England, for example, have a small wage premium
(less than 2%) relative to the private sector, while those with
bachelor's degrees experience a wage penalty of 7%.

Critics of public workers sometimes
claim that the real pot of gold is in the benefits packages-that public
workers receive far more generous insurance, leave, and retirement
benefits than private workers. And while state and local workers on
average do indeed receive more valuable benefits than private-sector
workers, the difference only reduces the wage penalty for the average
state and local government worker. The better benefits packages are not
better enough to offset the lower base pay.

The situation in New England is echoed on a national scale, where, according to "Debunking the Myth of the Overcompensated Public Employee: The Evidence,"
by Jeffrey Keefe, released today by the Economic Policy Institute, the
public employment penalty is slightly larger-3.7%. That study places the
issue squarely in the context of the crisis over state and local
budgets: "Thousands of state and local public employees will lose their
jobs, and their families will experience considerable pain and
disruption. Others will have their wages frozen and benefits cuts. Not
because they did not do their jobs, or their services are no longer
needed, nor because they are overpaid. . . . They do not deserve
bullying or our ridicule and condemnation by elected officials and the
media looking for scapegoats."

The full study "The Wage Penalty for State and Local Government Employees in New England" as well as a policy brief, are available at www.peri.umass.edu.