Part 2: Let's lay this myth to rest once and for all!

The previous blog post left us discovering that the average public-sector worker does indeed do better than the average private-sector worker in total compensation (wages plus benefits). All it takes to find this out is simple arithmetic, which most reporters are quite capable of handling. That's why these figures are so often reported in the popular press.

And so, end of story. Nothing more to see here, please move along. But wait! There's a gigantic assumption involved in all of this: That the "baskets" of workers we are comparing contain comparable sets of workers. Are we comparing apples to apples or apples to oranges?

This is where we need to replace the arithmetic of reporters with the economic research methodology of the Ph.D's, the folks trained to investigate how these two "baskets" of workers may be different and how we may go about actually making valid comparisons.

We need, for example, to look at studies such as Out of Balance? (Comparing Public and Private Sector Compensation over 20 Years). This study was done for the Center for State & Local Government Excellence and the National Institute on Retirement Security by Drs. John Heywood and Keith Bender and published in April, 2010.  Dr. Heywood is distinguished professor in the Department of Economics and Director of the Masters in Human Resources and Labor Relations program at the University of Wisconsin-Milwaukee. Dr. Bender is associate professor in the Department of Economics and in the Masters in Human Resources and Labor Relations Program at the same institution.

Heywood and Bender set out to "...examine the extent to which state and local government compensation in the United States is comparable to compensation in the private sector." They point out that "Levels of compensation help determine both the competence and efficiency of governmental services. Excessive levels waste resources, depriving the governments of the opportunity to address other costly objectives or to reduce burdens to taxpayers. Insufficient levels make it difficult, if not impossible, to attract workers of the quality needed to provide the services demanded by citizens."

They conclude that "Comparability with the private sector is the most generally accepted standard by which economists and compensation specialists judge whether the processes for determining compensation in the public sector are working."

In the Executive Summary of the study, they list their conclusions:

1) "Public and private workforces differ in important ways. For instance, jobs in the public sector require much more education on average than those in the private sector. Employees in state and local sectors are twice as likely as their private sector counterparts to have a college or advanced degree."

2) "Wages and salaries of state and local employees are lower than those of private sector workers with comparable earnings determinants (e.g., education). State employees typically earn 11% less; local workers earn 12% less."

3) "Over the last 20 years, the earnings for state and local employees have generally declined relative to comparable private sector employees."

4) "The pattern of declining relative compensation remains true in most of the large states we examined, although some state-level variation exists."

5) "Benefits (e.g., pensions) comprise a larger share of employee compensation in the public sector."

6) State and local employees have lower total compensation than their private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local workers, compared with comparable private sector employees."

Their final paragraph reads: "This recession call for equal sacrifice, but long-term patterns indicate that the average compensation of state and local employees is not excessive. Indeed, if the goal is to compensate public and private workforces in a comparable manner, then the data do not call for reductions in average state and local wages and benefits."  [Emphasis mine.]

Things are getting interesting!  In the next post we'll take a look at some numbers inside the study. In case you're wondering, New York was one of the "large states" which were specifically studied and we will have some interesting numbers concerning our state.