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September 2010, Week 3

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Wed, 15 Sep 2010 22:01:51 -0400
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New Study: State and Local Workers Earn Less than Private Sector, Even Factoring in Benefits

Center for Economic and Policy Research
http://www.cepr.net/index.php/publications/reports/wage-penalty-for-new-england-state-local-workers
For Immediate Release: September 15, 2010 
Contact: Alan Barber 202-293-5380x115

AMHERST, MA- 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.

###

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