New Report Says Earlier Studies ‘Undercount’ Public Sector Benefits

By Jon E. Dougherty at 6 Apr 2011

(Newsroom America) – A new report says that previous studies detailing private-public sector compensation levels “significantly undercount” public sector benefits, omit retiree coverage and ignore job security, among other miscalculations.

The report by right-leaning Heritage Foundation economists Andrew Biggs and Jason Richwine rebuts earlier studies by other think tanks that argue state and local workers are underpaid compared to their counterparts in the private sector.

Using the state of California as an example, the authors said the errors made by other organizations in examining the differences and similarities between public and private sector workers “can produce a substantial underestimate of public-sector compensation, leading to the erroneous conclusion that public workers receive compensation at or below market levels.”

Such reports tend to “ignore the critical issue of job security, significantly understate public-sector pension benefits, and omit the value of retiree health coverage,” the Heritage authors said.

In particular, Biggs and Richwine argue that reports similar to those published by the Economic Policy Institute, which generally claim that public sector workers are anything but overcompensated, are unsound because they fail to factor in variables like job security and public pension returns.

“Authoritative evidence from academic and official government sources confirms that job security, the guaranteed high return on public pension plans, and retiree health benefits are substantial components of public-sector compensation,” the authors wrote. “Failure to consider them invalidates most public–private pay comparisons.”

In their California example, the Heritage authors point to that state’s Department of Personnel Administration benefits Web site, which provides information regarding the state’s contributions to health and pension plans as well as state employees’ contributions. In most instances, California state workers’ benefits exceed those of private-sector employees.

In fact, California state employee retirees receive “$493,851 worth of compensation during the first 20 years of retirement, absent any future changes,” the DPA Web site says.

Other experts say that in fact, most public sector employees aren’t really overcompensated at all.

John Schmidt, a senior economist at the Center for Economic and Policy Research in Washington, D.C., in his own study of the issue, says “when state and local government employees are compared to private-sector workers with similar characteristics – particularly when workers are matched by age and education – state and local workers actually earn 4 percent less, on average, than their private-sector counterparts.”

Schmidt also hinted that compensation gaps may exist, in part, because most public sector employees are “substantially” better educated than their private sector counterparts and are generally older.

“On average,” Schmidt writes, “state and local workers are also older and substantially better educated than private sector workers. Half of state and local employees have a four-year college degree or more, and almost one-fourth have an advanced degree. Less than 30 percent of private-sector workers have a four-year college degree, and less than 10 percent have an advanced degree.”

The subject of public sector benefits and pensions has increasingly become a hot button issue as states – and the federal government – struggle with rising tides of red ink.

The issue came to the forefront in Wisconsin earlier this year when Republican Gov. Scott Walker and the GOP-dominated legislature passed a measure that curbed most union collective bargaining rights and requires most public sector employees to pay more for their health and pension benefits, to help shave the state’s anticipated $3.6 billion budget gap over the next two years.

The Wisconsin law has been violently opposed by the unions and is now tied up in court.

© 2010 Newsroom America.

Contact Jon E. Dougherty

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