Do we overpay public employees?

By ANDREW G. BIGGS & JASON RICHWINE   Tuesday, March 15, 2011
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Amid the rage over Wisconsin Gov. Scott Walker’s proposals to shrink government worker compensation, one question predominates: Are these workers overpaid? If so, it makes sense for them to accept less, rather than force taxpayers to give up more.

We’re told, of course, that they’re not. In recent weeks, left-leaning think tanks have tried to portray public employees, including government workers, as underpaid. A recent report from the Economic Policy Institute concluded that Wisconsin public employees are undercompensated by about 5 percent compared to private workers with similar skills and personal characteristics.

When counting the full value of benefits and job security, however, public employment in Wisconsin is a very good deal indeed.

As in most states, Wisconsin state and local workers make less in wages but more in benefits than comparable private workers. According to our analysis of the Current Population Survey, Wisconsin public workers have earned about 5 percent less in wages over the past five years than private workers in large firms—after controlling for age, education and many other earnings-related characteristics. (The penalty would disappear almost entirely if we compared public workers to employees of all private firms, not just the largest ones.)

Do generous benefits outweigh this wage penalty? The EPI report acknowledges that public-sector benefits are more generous than in private firms—equal to around 27 percent of total compensation for Wisconsin public workers, versus 19 percent to 23 percent for private employees. This already makes total pay nearly even for public- and private-sector employees.

But the EPI study underestimates public-sector pension benefits, omits retiree health benefits and doesn’t count the value of public-sector job security.

Wisconsin public employers fund their defined-benefit plans by calculating the contributions today which, compounded at an assumed 7.8 percent interest rate, will be sufficient to pay promised benefits at retirement. Because public-pension benefits are guaranteed by Wisconsin law even if investment returns fall short, this means public employees receive a riskless 7.8 percent return on their employer’s pension contributions.

Private-sector employees with 401(k) plans, by contrast, can earn only around a 4 percent guaranteed return by holding U.S. Treasury securities. Adjusting for this difference adds around 4 percent to total Wisconsin public-employee compensation.

Another overlooked benefit that most state and local employees receive is retiree health coverage. Even the simple right to buy into the employees’ plan, which is what most Wisconsin public retirees receive, is a good deal compared to the cost of a 60-year-old purchasing coverage in the individual market.

Other public employees receive an even better deal: Retired Milwaukee teachers receive full health coverage at almost no cost to themselves, a benefit that actuarial reports conclude is worth around an extra 17 percent of pay. While the value of retiree health benefits varies among Wisconsin public employees, almost all receive a better deal than the private sector, where retiree health coverage is rare and stingy by comparison.

Finally, public-sector workers enjoy significantly greater job security than private-sector workers. The Bureau of Labor Statistics reports that nationwide, state and local employees are fired or laid off at less than one-third the rate in the private sector. How much is this job security worth? A lot. A worker who loses a job spends an average of almost 20 weeks unemployed, during which time the worker must subsist on unemployment benefits.

We can put a number on this. Assuming that Wisconsin workers would have the same probability of being discharged, and the same duration of unemployment as private workers, their extra job security is equivalent to about a 9 percent increase in pay.

In short, the total job package for Wisconsin public employees—salaries, benefits and job security—is roughly 10 percent higher than what is paid to similar private workers, and in certain cases far more. Government workers should bear that in mind as they press their demands.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute. Jason Richwine is a senior policy analyst at The Heritage Foundation. Write to them in care of The Heritage Foundation, 214 Massachusetts Ave. NE, Washington, D.C. 20002; Web site: www.heritage.org.

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(55)
bigfish1
Mar 17, 2011 at 3:04 p.m.
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I see what's going on....Obama , the poor people's Democrat had much more money in his campaign warchest than the "wealthy" Republican's...how can that be ? If the Republican's are the party of the "wealthy" wouldn't they have the financial backing to dwarf poor boy Dem's ????? Open your eye's , they are both backed by wealthy donors .

bluecollarjoe
Mar 17, 2011 at 12:27 p.m.
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READ THIS,,,,and keep reading it till it sinks in,,,,,Based on the comments about many of the articles written during this budget repair bill debate, the GOP and their backers plan of divide and conquer the middle and working class seems to be working. By pitting non-union working and middle class people against union working and middle class people the GOP and their wealthy supports can succeed in the class warfare that Warren Buffet talked about in a New York times article as far back as 2006. He was quoted as saying "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." Keep fighting amongst yourselves and soon there will be no middle class in this country. Once the class war is completed by the wealthy and corporations there will be two classes. The rich class and the serving class. Which class will you fall into?,,,,,,to bad the low-income rebubs don't understand what is going on!!!!!!

truth1
Mar 17, 2011 at 12:14 p.m.
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Ezoner is right on......most problems could be solved if we could get rid of Republicans AND Democrats.

onedayatatime
Mar 17, 2011 at 12:07 p.m.
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I don't think they should have all been lumped into one catagory "Public Employees". They should be paid according to what their job is. IMO teachers, police, firemen, EMT's, anyone who takes another's life and future into their hands, anyone who puts their own life on the line when they go to work should be paid as highly as doctors or lawyers.

DavidG
Mar 17, 2011 at noon
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Good old American Interprise and the Heritage Foundation. Someone asked if the Kochs are contributors to these conservative groups. The answer is of course they are; at least to Heritage.

The slant on this thing is typical of their "reports" that are supposed to sound official.
They compare a 7.8% return from a pension plan with a 401K and then figure 4% for the 401K. My bet is that they are getting matching contributions to their 401K and they are investing in stocks that can pull in about 20-25% return this year.

Time magazine has a better story on public pay and benefits and it is not that great in most cases. Another point is that these guys are comparing public benefits with private benefits AFTER their CEO friends wiped out most good pension plans for their employers or even got rid of them completely by outsourcing.

dustyd
Mar 17, 2011 at 10:03 a.m.
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I hear ya! Because you've been screwed and undervalued by your employer, had your pension taken away and were required to take responsibility for a larger share of your health insurance, all while he and his relatives line their pockets with fresh cash, well, everyone else should have to suffer too! Just what the plutocrats and country club Republicans want: split the middle class, one against another in a struggle to catch the remaining crumbs, then divide and conquer.

Sandman
Mar 17, 2011 at 10:02 a.m.
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And yet former Idiot-in-Thief (affectionately known as "The Big Softy" or "Slim Jim") Doyle found enough surplus TAX money to provide additional insurance coverage for the "domestic partners" of state employees! A real "man's man," I'd say. Over pay? "Over-gay" is probably more accurate!

dustyd
Mar 17, 2011 at 10:02 a.m.
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I hear ya! Because you've been screwed and undervalued by your employer, had your pension taken away and were required to take responsibility for a larger share of your health insurance, all while he and his relatives line their pockets with wads of cash, well, everyone else should have to suffer too! Just what the plutocrats and country club Republicans want: split the middle class, pit one against another in a struggle to catch the remaining crumbs, divide and conquer.

chuckfull
Mar 17, 2011 at 9:27 a.m.
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Have you been drinking again?

liverpool
Mar 16, 2011 at 8:57 p.m.
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The WRS as it originally was set up required people to pay 1/2 of their pension contributions. In the 1970's when the CPI was often 15% or higher governments realized they could not give employees raises equal to the CPI or what was being given to private sector employees. Governments negotiated higher pension contributions in lieu of wage increases. This is why there is now a difference in wages and pension benefits between private and pulic sector employees. boss walker has made a political career of spreading false information and stirring up anger over the WRS and public employees.

ms_sassy_wi
Mar 16, 2011 at 3:58 p.m.
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as I was attempting to state in my earlier post: the benefits are not always that great either.

thediplomat
Mar 16, 2011 at 3:51 p.m.
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Like most information, it can be spun in many ways (i.e. the 9 percent premium on job security). Personally I have never been interested in a public sector job because of the low pay so I have never had any problem with them getting better benefits than I have offered to me. In my case, the extra pay more than makes up for the higher cost of benefits. Personally I blame the politicians themselves as all the fat they put into bills make it impossible for the state to "right-size" like a corporation would during lean times (not always cutting jobs either, sometimes other budget items).

hardin724
Mar 16, 2011 at 3:28 p.m.
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westorbust has it right. These authors are both associated with right wing organizations whose stated policy is to undermine labor and the environment all in the pursuit of the almighty dollar. Walker's agenda is the same.

ms_sassy_wi
Mar 16, 2011 at 3:11 p.m.
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enough so public workers don't have to rely on other government and social agencies (job centers, section 8 housing and badger care, for instance) to survive.

what we are going to end up doing will be taking from one agency and giving to others-which costs MORE to administer in the long run.

chuckfull
Mar 16, 2011 at 2:55 p.m.
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How much is enough?

ms_sassy_wi
Mar 16, 2011 at 1:43 p.m.
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Since my Dad passed away, my Mom has purchased her own insurance and moved out of the JSD retiree package, because it was more expensive than what she could purchase on her own, in conjunction with Medicare.

If Walker rips the pension fund out from under my Mom, she will likely lose her house, even though the mortgage is paid...due to living increases that she cannot afford. What a great way to thank the State employees and their spouses for the MANY sacrifices they made throughout the years. Sad part is....the people making these changes didn't have my Dad for a teacher. If they had, they would have a completely different outlook on the value of teachers and other state employees in our communities.

But long term...we will need to privatize jails and prisons. No one in their right mind will put up with the crap the prisoners give out for the reduced pay and benefits of Walker's bill. I have an idea: set the prisoners free and let them work for Walker.

ms_sassy_wi
Mar 16, 2011 at 1:33 p.m.
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ARE YOU KIDDING ME?! When my brother-in-law was hired as a recent graduate from MATC with a 2-year business/marketing Associates Degree, he was offered a private sector job with a starting pay of more than my father, who, at the time had 20+ years as a Janesville School District teacher. And I needed glasses, but the JSD insurance didn't offer vision insurance (which I have always viewed as crazy-who would want even teachers or their kids to be able to afford glasses to read a book with corrected vision?!) My Mom had to go to work full-time for the insurance so we could afford the little luxuries like glasses.

BunBun
Mar 16, 2011 at 12:47 p.m.
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maybe they are not overpaid but we just have a surplus of them.

JoyM
Mar 16, 2011 at 11:39 a.m.
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fightfraud - what are you talking about, better benefits? Back then, insurance companies didn't even have to cover pregnancies of married women, as I know of a case where the policy only covered births that took place at least 10 months after the wedding date and the wife got pregnant on the honeymoon, so no benefits were paid. And frusion is right about welfare benefits/government coverage - very few qualified when it did exist. The good old days really weren't all that good in many regards.

westorbust
Mar 16, 2011 at 10:09 a.m.
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Ummm, yeah. Does anyone know who is behind the "Heritage Foundation"? This is like asking a Huff-post columnist to write about the negatives of conservatism, you know what the outcome of the column is before you even start. What a joke.

http://heritage.org/
http://www.aei.org/aei-website/managed-c...

Of course big business hates unions, just as the sun shines every morning. I'm sure they have the working guy's interests at heart though. No really! I also saw Santa on Xmas and think I caught a glimpse of the Easter bunny the other day.
*****
Magical thinking, it's everywhere.

Ezoner
Mar 16, 2011 at 9:37 a.m.
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I agree with some of the statements -- I do believe that public employees should pay for a portion of their benefits. I also believe that the real theives are the politicians. That they should be recieving the same benefits as the public employees and that all should be roughly in-line with private employment. The disparity will tear apart the fabric of the nation. Then again -- I made the decisions to enter the labor market -- I made my career choice. I chose not to be a bum and live off the public like our politicians do.

frusion
Mar 16, 2011 at 9:11 a.m.
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yada, I agree public employees should be paid fair market wages for the work they do just like any job. However, can you provide a clarification on "...they deserve better" Better than what? Compared to what?

brokdetaxes
Mar 16, 2011 at 9:08 a.m.
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What job security? I'm tired of everyone looking at public employees as teachers. I'm a public employee. I earn $26,000 a year. I get a one year contract. If I am not renewed, I'm out a job. My performance determines both whether I keep my job and whether I get a raise. Yes, I have good insurance. Between the change in pension and insurance contributions, I will lose 25% of my take home pay to keep it. Not everyone is a teacher or administrator earning $100,000 a year.
The area I would like to change is the fact the elected officials who may serve one or more terms is entitled to insurance and pensions for life. As usual, the sweeping changes being made affect the lower income much more than the upper income people.

frusion
Mar 16, 2011 at 9:07 a.m.
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fightfraud, our parents and grandparents had better benefits? Where did this take place? Can you cite the source of this information? As I recall, my grandparents had nothing close to even welfare type benefits. They worked hard for their money and spent it as they could afford--ONLY what they could afford. My parents had decent insurance but nothing different than average coverage.

dtb
Mar 16, 2011 at 8:44 a.m.
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Mudsill-it is possible to get your own health insurance policy; it doesn't have to be from your employer.

When our premium nearly doubled this year (thanks to the new health law and other factors), we purchased an individual policy for our family of 3. Since we are basically healthy and the group at work was a "bad group" (lots of older folks with many different health issues) we got a decent price. We now pay 100% of our premium with after tax money, and it's $25 per month more expensive than what we paid last year (with the employer paying 60%) so I won't say we are saving money, but it's a lot cheaper ($300 a month) than what we would be paying if we had stuck with their plan, even though they still pay 60%. Similar coverage and deuctible, although we now have a 20% copay.

It's worth looking into if your premiums are really high.

fightfraud
Mar 16, 2011 at 7:32 a.m.
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Everyone wants to take away from the public employees... The question I have is why shouldn't we all have better benefits? Our parents generation did. Our grandparents generation did. Perhaps we should focus on figuring out how we can all benefit rather than taking away from others. Why are the rich getting richer as the rest of us are losing wealth?

nrhp1
Mar 16, 2011 at 6:51 a.m.
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A 9% pay increase due to job security? Try spending job security at the store.

justmy414
Mar 16, 2011 at 6:49 a.m.
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Hmmm, The Heritage Institute, founded and funded by the Koch brothers thinks public employees are overpaid. What a surprise. Didn't the Gazette just write an article about trying to be less biased in thier reporting? Now they publish an article, supposedly to clear up the understanding about public employees written by the policy analyist of the The Heritage Institute. Geee, Gazette, why not just call up David Koch and ask him for a quote on public employees salaries.

rprp
Mar 16, 2011 at 6:26 a.m.
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Yes, in some areas.

916WI
Mar 16, 2011 at 6:12 a.m.
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The sour grapes coming from the public union members who are going to have to deal with this adjustment is also getting a little long in the tooth......

yada
Mar 16, 2011 at 6:08 a.m.
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No we do not overpay them! They are real people with families and deserve better.They should have a voice in this. I wonder if the union busting has anything to do with fighting his political foes. The ultra conservatives like Walker are nuts.This is not Nazi Germany and it is time for action. I will not do business with anyone that has donated money to the Walker campaign. Also, I would encourage other readers to research his campaign problems when he was a student running for office at Marquette.

PrettyWoman
Mar 16, 2011 at 2:01 a.m.
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The real issue is that government employees are paid by taxpayers. It's only logical that the government employee BENEFITS should be fully taxable. I believe Governor Walker is working on this discrepancy.

RetiredAirForce
Mar 16, 2011 at 1:34 a.m.
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Math seems to be an issue for people.

The current budget that began ~20 months ago, included a NEW 1.2 billion dollar increase in taxes and ~800 million dollars from the federal government in stimulus money...the state still spent more than they received.

How can people not understand the problem is spending, yes this also includes government jobs. I love how some still cry, "tax more", while ignoring this hasn't worked yet so why continue the insanity?

The answer is simple, only spend what is collected-----ALL THE TIME.

chuckfull
Mar 15, 2011 at 10:43 p.m.
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Yes

dtb
Mar 15, 2011 at 9:53 p.m.
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Nice try calling job security a 9% increase in pay then saying public employees make 10% more than private. Other than smoke and mirrors, there is no explanation how he arrives at this 9%. And if a worker keeps his job and doesn't go on unemployment for 20 weeeks doesn't this save the state money?

mrbread
Mar 15, 2011 at 9:51 p.m.
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Andrew G. Biggs is a resident scholar at the American Enterprise Institute. Jason Richwine is a senior policy analyst at The Heritage Foundation....... seriously, read a little about the American Enterprise Institue and the Heritage Foundation. These organizations are super conservative! 20 contributing writings at AEI are from Bush era government including Newt Gingrich. Dig a little deeper? Some people suggest that the Koch brothers fund these "think tanks".

Joan
Mar 15, 2011 at 9:50 p.m.
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What about having to pay for your own parking like the State workers who work downtown and the furlough days? Where is that in this "creative" equation. And are we really talking about job security when so many are about to lose their jobs due to budget cuts?

nemesis
Mar 15, 2011 at 9:42 p.m.
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So NOW you use your intellect and investigate the story deeper. Too bad you didn't do this story four weeks ago. If you had you too would be subject to boycotts by the unions.

maxl
Mar 15, 2011 at 5:58 p.m.
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This is sort of a moot point now that no one will be bargaining for anything.

my10niki
Mar 15, 2011 at 5:54 p.m.
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Apparently no one wants to comment on this article, must be too real!

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