posted 01-05-2011 09:04 PM                  

But now the right is going after public employees.

Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don't want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they'd like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.

It's far more convenient to go after people who are doing the public's work -- sanitation workers, police officers, fire fighters, teachers, social workers, federal employees -- to call them "faceless bureaucrats" and portray them as hooligans who are making off with your money and crippling federal and state budgets. The story fits better with the Republican's Big Lie that our problems are due to a government that's too big.

Above all, Republicans don't want to have to justify continued tax cuts for the rich. As quietly as possible, they want to make them permanent.

But the right's argument is shot-through with bad data, twisted evidence, and unsupported assertions.

They say public employees earn far more than private-sector workers. That's untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.

The Republican trick is to compare apples with oranges -- the average wage of public employees with the average wage of all private-sector employees. But only 23 percent of private-sector employees have college degrees; 48 percent of government workers do. Teachers, social workers, public lawyers who bring companies to justice, government accountants who try to make sure money is spent as it should be -- all need at least four years of college.

Compare apples to apples and and you'd see that over the last fifteen years the pay of public sector workers has dropped relative to private-sector employees with the same level of education. Public sector workers now earn 11 percent less than comparable workers in the private sector, and local workers 12 percent less. (Even if you include health and retirement benefits, government employees still earn less than their private-sector counterparts with similar educations.)

Here's another whopper. Republicans say public-sector pensions are crippling the nation. They say politicians have given in to the demands of public unions who want only to fatten their members' retirement benefits without the public noticing. They charge that public-employee pensions obligations are out of control.

Some reforms do need to be made. Loopholes that allow public sector workers to "spike" their final salaries in order to get higher annuities must be closed. And no retired public employee should be allowed to "double dip," collecting more than one public pension.

But these are the exceptions. Most public employees don't have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year. Few would call that overly generous.

And most of that $19,000 isn't even on taxpayers' shoulders. While they're working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits. Remember also that many public workers aren't covered by Social Security, so the government isn't contributing 6.25 of their pay into the Social Security fund as private employers would.

Yes, there's cause for concern about unfunded pension liabilities in future years. They're way too big. But it's much the same in the private sector. The main reason for underfunded pensions in both public and private sectors is investment losses that occurred during the Great Recession. Before then, public pension funds had an average of 86 percent of all the assets they needed to pay future benefits -- better than many private pension plans.

The solution is no less to slash public pensions than it is to slash private ones. It's for all employers to fully fund their pension plans.

The final Republican canard is that bargaining rights for public employees have caused state deficits to explode. In fact there's no relationship between states whose employees have bargaining rights and states with big deficits. Some states that deny their employees bargaining rights -- Nevada, North Carolina, and Arizona, for example, are running giant deficits of over 30 percent of spending. Many that give employees bargaining rights -- Massachusetts, New Mexico, and Montana -- have small deficits of less than 10 percent.

Public employees should have the right to bargain for better wages and working conditions, just like all employees do. They shouldn't have the right to strike if striking would imperil the public, but they should at least have a voice. They often know more about whether public programs are working, or how to make them work better, than political appointees who hold their offices for only a few years.

Don't get me wrong. When times are tough, public employees should have to make the same sacrifices as everyone else. And they are right now. Pay has been frozen for federal workers, and for many state workers across the country as well.

But isn't it curious that when it comes to sacrifice, Republicans don't include the richest people in America? To the contrary, they insist the rich should sacrifice even less, enjoying even larger tax cuts that expand public-sector deficits. That means fewer public services, and even more pressure on the wages and benefits of public employees.

It's only average workers -- both in the public and the private sectors -- who are being called upon to sacrifice.

This is what the current Republican attack on public-sector workers is really all about. Their version of class warfare is to pit private-sector workers against public servants. They'd rather set average working people against one another -- comparing one group's modest incomes and benefits with another group's modest incomes and benefits -- than have Americans see that the top 1 percent is now raking in a bigger share of national income than at any time since 1928, and paying at a lower tax rate. And Republicans would rather you didn't know they want to cut taxes on the rich even more.

Robert Reich is the author of Aftershock: The Next Economy and America's Future

posted 01-06-2011 08:49 AM                  

January 4, 2011, 12:00 pm
Do Public Workers’ Diplomas Justify Their Pay?
By MICHAEL POWELL
Several attentive readers of my post Monday on public workers’ compensation raised interesting questions that go to the heart of a debate flaring in many statehouses and cities. (And as my colleague Steven Greenhouse reports on Tuesday, it is a debate that is prompting some states to ponder ways to curb the power of public-sector unions.)

Several studies have found that public workers tend to have more education than private-sector workers, and a reader asks if this perhaps indicates that public workers are overeducated. Jeffrey Keefe, a Rutgers professor, studied this issue for the Economic Policy Institute and found that 57 percent of public-sector New Jersey employees hold four-year degrees, compared with 40 percent in the private sector.

But in large part this owes to two factors, the first of which goes to the nature of public-sector employment. Teachers, who all have four-year degrees and often master’s and other advanced degrees, make up the single largest part of the public work force. Similarly, the professionalization of police departments most often means that even patrol officers hold at least two-year degrees and brass most often hold four-year degrees and more. As one jumps from department to department, from social workers to environmental workers to budget analysts, college degrees are as often the coin of the realm.

As well, large organizations, public and private, tend to pay better and to offer better benefits, and to demand more education. For instance, 81 percent of organizations with more than 500 employees offer retirement plans of one sort or another. (Now, a word of caution here: Public-sector employees have on average more enriched retirement and health plans than do private-sector employees, even when taking into account size of the organization.)

For this reason, the Manhattan Institute, which studied New Jersey teacher salaries and found those roughly comparable to the private sector, had balked at my report. It says that when pension and health benefits are included, teachers likely will come out ahead of comparable private-sector workers. But the institute has not studied that question or the specific data.

Finally, the teachers’ union president in Washington Township, N.J., one of the towns featured in my Sunday article, notes that the politics of negotiating givebacks in straitened times is more complicated than the public realizes. (As I noted in my article, a number of union leaders argued privately that the teachers’ union made a tactical mistake in not agreeing more readily to Gov. Chris Christie’s call for a wage freeze.)

Kevin Parker, one of the teachers’ union leaders in Washington Township, writes that New Jersey’s collective bargaining law prohibits unions from bargaining for positions. That is, teachers’ unions could not ensure that the school boards would keep their word and not pocket the savings and lay off teachers.

As well, he argues that the district saves money each year when teachers retire and new ones are hired, a salary savings of about $33,000. Now, one could argue that with Washington Township facing a $900,000 shortfall in state aid this last year, such savings were not nearly enough.

posted 01-06-2011 09:00 AM                  

Public Sector Workers Are the New Privileged Elite Class

Outrageous public pay, pensions, and inherent corruption are enraging private sector America
By Mortimer B. Zuckerman

Posted: September 10, 2010
We really are two Americas, but not those captured in the stereotypical populist class warfare speeches that dramatize the gulf between the rich and the poor. Instead there is a new division in America that affronts a sense of fairness. That division is between the workers in the private sector and the workers in the public sectors. No guesses which is the more protected. A new study by the Mayo Research Institute, based in Louisiana, demonstrates that there is a striking differential in the impact of the recession. In 2009, the study found, "private-sector workers were nearly three times more likely to be jobless than public-sector workers."

Political tension is bound to grow when private sector jobs disappear faster but at the same time private sector compensation is being squeezed much more than that of the public sector. The rate of compensation for a generation of public service employees has gone up much faster than the personal income of the people who pay for these workers. The gap has widened dramatically between private sector workers at all levels of remuneration as compared to employees in federal, state, and local governments. Once there was a time when government work offered lower salaries than comparable jobs in the private sector, a difference for which the public sector compensated by providing more security and somewhat better benefits. No longer. These days, government employees are better off in almost every area: pay, benefits, time off, and security, on top of working fewer hours. They can thrive even in a down economy. It is tantamount to a wealth transfer from the citizens to the people who serve in government. Millions of public workers have become a kind of privileged new class—a new elite, who live better than their private sector counterparts. Public servants have become the public's masters. No wonder the public is upset.

Take federal employees. For nine years in a row, they have been awarded bigger average pay and benefit increases. The result is that the total compensation gap between federal and private workers has doubled in the past decade, according to data from the federal Bureau of Economic Analysis. In 2008, the average wage for 1.9 million federal civilian workers was more than $79,000, versus an average of about $50,000 for the nation's 108 million private sector workers, measured in full-time equivalents, according to federal figures. Comparing the same mix of jobs, the gap was about $8,000 in salaries and $31,000 in benefits. Ninety percent of government employees receive lifetime pension benefits. Only 18 percent of private employees enjoy that protection. Public service employees continue to gain annual salary increases; they are almost impossible to fire; they retire earlier with instant, guaranteed benefits paid for by the taxes of those very same deprived private sector workers.

Of course public service workers should receive a fair level of pay and decent retirement and other benefits. What is galling, though, is when they routinely find ways to beef up their superior pay so as to turbocharge their pensions (typically based on a percentage of salary), while many of those in the private sector lack viable pension programs at all. This will stick future generations of Americans with higher taxes to meet these public service pension obligations and bring about reduced public services. Nice work if you can get it!

More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies like the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. You have a dynamic conflict of interest when the self-interest of the legislators is to appease the public service unions with pledges that won't come due until the lawmakers have left office. Their successors will have to cope with the inherited debt burden—and ultimately the nation's taxpayers are stuck with the bill at the federal, state, and local levels. Behold the consequences: less money for social services, libraries, road improvements, education, and other public service programs, i.e., the whole basis of the initial arguments for more public sector pay! States and localities don't have the federal government's ability to print money, and they have a much more limited capacity to borrow. The result, according to the Pew Center on the States, is that they face underfunded benefit and pension obligations that exceed $1 trillion. That estimate was before the stock market drop in the last couple of years. Liabilities for debts for these entities have increased from an estimated 12 percent of GDP in 1980 to an estimated 22 percent this year, approaching $2.5 trillion.

Occasionally the public wakes up to the consequences of the double-dealing and self-interest when they become dramatized, as in the egregious case of Bell, Calif. The Los Angeles Times exposed the scandal: The city manager of Bell, a town of 37,000, received not only a base salary of $787,000 but an unusually large package of benefits that increased his annual compensation to more than $1.5 million. His contract was going up every year, once by 49 percent, and more recently by 12 percent every July, resulting in a $600,000-plus annual pension obligation. Similarly disproportionate raises went to the assistant manager, whose pay and benefits totaled $845,960, and to the police chief, who got over $700,000 in salary and benefits. Meanwhile, the city council members were receiving total compensation of about $100,000 a year for part-time work. What made the Bell blowout infuriating is that these city officials secretly paid themselves such bounties at a time when the city had to cut spending on police, social services, parks, recreation, and programs for children. The three top officials were forced to resign and the salaries of the city council members were reduced by 90 percent.

This crazy stuff is not unusual in California. The Golden State, which once boasted the world's best highway system and the country's finest public school system, including tuition-free higher education for residents, today can't afford to build decent highways, educate its children, or even protect its citizens from crime. As Governor Schwarzenegger has pointed out, spending on retirement benefits for California's state employees is growing at triple the rate of state revenues. Now exceeding $6 billion annually and growing at the rate of 15 percent a year, they are crowding out higher education, environmental protection, parks, and more. In a single generation, the profligate state has gone from golden icon to bankrupt bum. Brother, can you spare a zillion dimes?

The politics of public pensions appear to be changing in other states. In Michigan, Gov. Jennifer Granholm, a Democrat, recently enacted a teacher pension reform that should save about $3 billion over 10 years by increasing the amount workers must contribute. Illinois raised its retirement age for newly hired public workers from as low as 55 all the way up to 67. Republican Gov. Chris Christie of New Jersey decided that even if it took bruising clashes with public worker unions, public service compensation reform was essential for the fiscal health of the state. His stance surprised many, but it turned him into the state's most popular politician and made him a national figure. In New York, the leading candidate for the governorship, Andrew Cuomo, a Democrat, has made curbing some of these public costs an essential plank in his campaign.

These leaders understand that it is the taxpayers and public services that suffer if public sector managers overcommit and overspend on salaries and benefits for their employees. State and local governments are not subject to the kind of profit-and-loss restraints that dominate the private sector. They obtain their revenues by the coercion of the public through taxes; essentially they cannot go out of business. The public will always foot the bill.

No wonder the public is enraged by the whole performance. This is especially so when they can witness the multiplier effect: Generous pensions encourage more public service workers to retire at an early age, raising the cost to the taxpayer who has to pay not only for the retired employees but for the full-time replacements as well.

There is no quick fix to deal with the billions of dollars in unfunded liabilities. You can't reduce the number of public service employees because it is almost impossible to fire government workers except after a long process and only for the most grievous offenses. What's more, the courts have ruled in many states that pension increases granted by elected bodies are vested benefits that must be paid no matter what, precluding politicians from going back and changing past agreements.

The only fair solution is to take the pols out of the equation and have fully independent commissions in charge. These commissions should fix the scale of salaries and benefits for public service workers and establish an affordable second retirement tier for new employees, who would be subject to defined contribution plans or far more modest defined benefit plans. Pensions should not be allowed to exceed a final year's pay. More reasonable retirement ages should also be in order, such as 65 for general employees and 55 for public safety employees. This would take nothing away from current employees; they would continue under their existing benefit plans. Similarly, public workers should not be allowed to receive a pension from one public employee retirement system, then work for another government entity and collect a second public pension from a different retirement system. We would say an unregretted goodbye to the practice of elected public servants providing government workers with unaffordable compensation and pension levels that result in future generations being stuck with higher taxes, unsustainable debt loads, and reduced public services.

A fundamental rethinking of the public workforce is necessary. Americans will not continue to tolerate public employee pay and benefit levels that dwarf those of the private sector.

Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector's work subsidizes the disproportionate benefits of this new public sector elite.

posted 01-06-2011 09:12 AM                  

Comparing Private Sector and Government Worker Salaries
Public sector offers ironclad job security and greater pension benefits

Adam Summers
May 10, 2010

There has been much debate over whether public sector employees are overpaid or underpaid, relative to their private sector counterparts, and how to make an "apples-to-apples" comparison of the compensation received by each since job functions are oftentimes quite different. The following seeks to address this issue in light of a new report that suggests that state and local government workers receive less total compensation than comparable private-sector workers, and to examine how issues not addressed in the study might affect those conclusions.

Are Public Sector Workers Overcompensated?

Several analyses of average wages and benefits in the public and private sectors reveal that state and local government workers earn more than private sector workers. According to the most recent Employer Costs for Employee Compensation survey from the U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers-a difference of over 44 percent. This includes 35 percent higher wages and nearly 69 percent greater benefits.

Data from the U.S. Census Bureau similarly show that in 2007 the average annual salary of a California state government employee was $53,958, nearly 32 percent greater than the average private sector worker ($40,991). In addition, as noted by reporter and Calpensions.com blogger Ed Mendel, in 2006 the state conducted a comparison of state and private sector compensation for the first time in two decades. While the Department of Personnel Administration survey did not include all job classifications, the analysis determined a number of benchmark job classifications and found that state compensation was greater than private sector compensation for clerical jobs, accountants, custodians, electricians, stationary engineers, and analysts, but lagged in medical occupations.

Moreover, data from the Bureau of Economic Analysis illustrate that average state and local government compensation has been increasing at a faster rate than average private sector compensation over the past 30 years (see the graph on page 89 of this Cato Journal article).

Are Public Sector Workers Undercompensated?

But according to a new study published by the Center for State & Local Government Excellence and the National Institute on Retirement Security, these aggregate compensation comparisons are misleading. The authors, University of Wisconsin-Milwaukee economics professors Keith A. Bender and John S. Heywood, assert that state and local government workers are better educated and have more work experience, on average, than do private sector workers, so it is natural that their overall average compensation would be higher. "Thus," they conclude, "the fact that public sector workers receive greater aver­age compensation than private sector workers should be no more surprising than the fact that those with more skills and education earn more."

Furthermore, after attempting to control for such variables, they find that state and local government workers actually earn less than their private sector counterparts. According to the analysis, state government workers earn an average of 11.4 percent less than private-sector workers of similar education and work experience and local government workers earn 12.0 percent less. Due to the greater benefits received by public sector workers, the gap narrows when these benefits are factored in, to 6.8 percent and 7.4 percent, respectively. (Even this appears to underestimate the cost of the benefits provided government workers, as discussed below.)
The Difficulty of Compensation Comparisons

As the report notes, it is difficult to do a real "apples-to-apples" comparison of public and private sector compensation because public sector job descriptions and duties may be very different from those in the private sector, and vice versa, so oftentimes there are no good positions to compare to in the other sector.

It would be interesting to take a closer look at the education statistics. Knowing the percentage of workers with a college degree, for example, is helpful, but not all college degrees are equal. Some fields of study are more rigorous than others, and some universities and colleges are more prestigious than others. One who earns a degree in a more rigorous field, or who attends a more prestigious (and usually a more costly) university, would expect to earn a higher salary after college than one who did not. While data with this level of detail do not seem to be available, it would be interesting to see if there are any differences in these more specific educational categories between public and private sector employees.

It is also worth asking whether higher education levels are actually required to perform many government jobs. The Bender and Heywood study presumes that we should expect public employees to be paid more because they tend to be better educated than comparable private sector employees, but is this additional education necessary?

It may be that state and local governments hire more educated people not because job duties demand more education, but rather simply because they can, as they have access to the public's money and, as such, government budgets are not so constrained as private firms' budgets. In the private sector, firms have strong incentives to keep costs down and pay no more for labor than they need to. The public sector, by contrast, is infamous for its lack of efficiency, and budgets are determined by political means, resulting in budgets that are usually much different-and more wasteful-than those determined by economic means (see the discussion of public-sector versus private-sector productivity below). This is why governments typically achieve significant cost savings by outsourcing the provision of services to the private sector. Thus, it may be that governments are paying higher wages to better-educated employees not because those employees' educational skills are required to perform their job duties, but rather because they are overqualified for their jobs.

It is worth noting that private sector compensation might also be skewed higher by a relatively small number of very high income earners, such as large corporation CEOs and senior officers, entertainers, and professional athletes, for which there is no equal in the public sector.

Productivity Differences
Even taking the study's analysis as given, this does not mean that the value of an average government worker's labor is equal to that of an average private sector worker with similar education and work experience. This is because private sector workers tend to be more productive. As Cato Institute Director of Tax Policy Studies Chris Edwards notes in a recent paper, according to the U.S. Bureau of Labor Statistics (BLS) National Compensation Survey, private-sector employees worked an average of 2,050 hours in 2008, 12 percent more than the 1,825 hours worked by the average public-sector employee.

Even on an hour-for-hour basis, one would expect private sector workers to be more productive due to the lack of competitive forces in government. Private sector businesses face constant pressures of competition to innovate and improve their goods and services, lest they lose business to their competitors. Government agencies, by contrast, are typically monopolies protected by law, and thus are not subject to such competitive incentives and pressures. (There is a reason for all those jokes and complaints about the efficiency of post office and DMV workers.)

Job Security Differences

The notion that public employees are significantly undercompensated begs the question: if they are so underpaid, why would they agree to take government jobs when they could earn more by performing similar jobs in the private sector? Some might cling to the romantic idea of "public service," but public-sector employees are every bit as self-interested as private-sector workers, so this answer is wholly unsatisfying.

One major factor not discussed by the report's authors that could provide an explanation (setting aside the possibility that public-sector workers are actually overcompensated, relative to their private-sector counterparts) is the significant difference in job security. Government job security is famously, and notoriously, ironclad, oftentimes making it practically impossible to fire or lay off public-sector workers for the same reasons employees are terminated in the private sector, even in cases of poor performance or unethical activity. This job protection has tremendous value which is not captured in the Bender and Heywood report.

Whether for job security or other reasons, the attraction to government jobs is evidenced by job-quit rates. Lower quit rates indicate a lack of better job opportunities elsewhere. Indeed, as the Cato Institute's Chris Edwards points out (see pages 92-93), BLS data reveal that the quit rate is significantly lower in the public sector than in the private sector. Between 2001 and 2009, the public sector layoff and discharge rate is only about one-third of the private-sector rate. Surely, if government workers were so poorly compensated and were qualified to earn significantly more in the private sector, they would leave for those private sector opportunities and the quit rate would be much higher.

In California, the state's prison guards provide a good example of the lack of dissatisfaction with public-sector compensation. According to a February 2008 Legislative Analyst's Office report, correctional peace officer costs make up the largest share of General Fund personnel expenses. The approximately 30,000 state correctional peace officers make up nearly 10 percent of all state employees. The report described correctional officers' overall compensation levels as "very attractive," particularly considering that the job requires only a high school or equivalent education, and noted that the California Department of Corrections and Rehabilitation (CDCR) boasts that the job "has been called 'the greatest entry level job in California'-and for good reason," and that "Along with the great salary, our peace officers earn a retirement package you just can't find in private industry." Perhaps this, along with the CDCR's inability to control sick leave and overtime benefits, is why the state receives roughly 130,000 applications to become a prison guard each year.

Not surprisingly, there is very little turnover among California prison guards. A May 2006 California Policy Research Center report found that

Only 1,000 of California's 36,000 sworn peace officers left the CDCR [California Department of Corrections and Rehabilitation], an annual turnover rate of 3.6%. This is very low for public service generally and quite unusual for correctional settings, where burnout is typically a significant staff issue. California may have the lowest turnover rate of any state corrections department. In many states, by contrast, turnover rates among correctional officers hover around 20%. (see page 27)

Rising Numbers of Government Workers

Even if we were to assume that the productivity of public and private sector workers is equal, or that differences in job security were not a factor, this would not speak to the necessity or sheer number of government employees, and thus to the overall cost or necessity of government programs. Unlike the private sector, where decisions on the number and compensation of employees are driven by supply and demand and economic realities, the size and cost of government employees is driven by the political process. Thus, government employees' labor unions are constantly pressuring legislators (who are frequently indebted to the unions for campaign contributions and other help provided to get them elected) to increase workers' wages and benefits, and legislators are always creating or expanding government programs that may or may not be needed or effective. These pressures are independent of economic constraints, and are limited only to the extent that taxpayers refuse to consent to additional borrowing or tax increases.

This has allowed governments at all levels to continue to add employees even during the severe recession that has forced a significant contraction in the private sector. Between December 2007 and December 2009, the private sector lost more than 7.3 million jobs, yet the number of government jobs actually increased by about 100,000 (see figure below).

In California, even as the state struggled with the recession, plummeting revenues, and record budget deficits, and Gov. Schwarzenegger issued a supposed hiring freeze, the state continued to hire more workers. Incredibly, the state has added over 13,000 employees since the onset of the economic recession in 2008 and continued hiring even during the worst of the recession. According to a Sacramento Bee analysis of State Controller's Office data, between June 2008 and January 31, 2009, most state agencies either maintained or increased the number of full-time employees, resulting in a net increase of over 2,000 workers (not counting the Department of Forestry and Fire Protection, which always sees large drops in the number of its employees after fire season).

It should come as little surprise, then, that taxpayers are upset as they watch government union ranks swell as their governments face serious budget strains and private businesses and households have been forced to cut back to adjust to economic conditions and live within their means.

The implication behind the argument that public-sector workers are no better compensated than private sector workers is that taxpayers are getting their money's worth, but this is not necessarily the case. Even if public employee compensation is on an even keel with comparable private employee compensation, the government may still be employing more people than necessary to do the job or hiring people to perform tasks in which the government should not be involved in the first place. Such conclusions involve subjective determinations outside the scope of the Bender and Heywood report, but they should certainly not be overlooked in discussions of the cost of government services.

Public-Sector Pension and Retiree Health-Care Benefits Differences

As with job security, there is a value to the guaranteed nature of public sector benefits that is not captured in the Bender and Heywood report. In most states, including California, government workers' benefits are protected by state constitutions, and the benefits of current employees cannot be reduced. This is a protection that is not available in the private sector, where pension plans may be frozen, benefits may be reduced, and companies can go bankrupt, which could cause employees to receive fewer benefits than promised.

In addition, the value of public sector benefits seems to be understated. Granting that the BLS's Employer Costs for Employee Compensation (ECEC) survey does not account for differences in worker education, job experience, or job duties, the survey can nonetheless prove instructive. The survey estimated that public sector workers, in aggregate, earned an average 35 percent more than private sector workers, and the Bender and Heywood report found that, after controlling for the aforementioned variables, public sector workers actually earned 11-12 percent less than comparable private sector workers. Yet, while the ECEC survey reported a much greater 69 percent advantage for public sector benefits, the Bender and Heywood total compensation gap narrowed only slightly, from 11-12 percent to roughly 7 percent (public employees received more benefits than comparable private-sector workers, but the difference was much smaller than that reflected in the ECEC survey). The relatively small impact of the greater benefits of public employees also appears to fly in the face of the fact that in California and elsewhere, many state and local governments have increased government employees' benefits by as much as 50 percent in the past decade or so, allowing many workers to retire as young as 50 or 55 years old with pensions equal to as much as 90 percent of their final salaries. These are benefits unheard of in the private sector.

In the Bender and Heywood report, the authors assumed that the determinants of benefit values-factors such as education, age, and other demographic characteristics-affect the results in the same way that the determinants affect the calculations of hourly earnings. The authors acknowledge that this assumption is debatable. If the determinants affect the comparability of benefits in a different way than they affect wages, then this could skew the results. Perhaps this could account for at least some of the apparent discrepancy.

Moreover, the report cannot account for expected increases in benefits that would result in greater compensation for public employees, relative to comparable private-sector employees. The report is necessarily a snapshot in time, as it would be impossible to predict all future changes to employees' wages and benefits. Yet, we can safely assume that health care costs, and thus the costs of employees retiree health care benefits, which have risen on the order of 10 percent a year for most of the last decade, will continue to rise, particularly since demand for health-care services will increase as the Baby Boomer generation enters retirement (and, it could be argued, the supply of health care practitioners might be reduced by increased government involvement in the health care industry, thus exacerbating these cost increases). Retiree health benefits are typically much more generous in the public sector than they are in the private sector, if they are provided at all in the private sector. In California, the state pays 100 percent of health care costs for retired state workers and 90 percent of costs for retirees' families. Barring any commensurate reductions to these benefits, which, unlike pension benefits, can, in fact, be reduced, we should expect to see the gap between public and private employee benefits widen and the differences in comparable public and private employees' total compensation to adjust accordingly.

Conclusions

While the recent study from the Center for State & Local Government Excellence and the National Institute on Retirement Security comparing public sector and private sector compensation levels correctly notes that aggregate comparisons of average public and private wages and benefits can be misleading, its conclusion that state and local government employees are undercompensated, compared to private-sector employees, is suspect at best. The analysis ignores the value of virtually ironclad job security and certainty of pension benefits, features that are notably absent in the private sector. It also overlooks the greater efficiency and productivity of private sector workers, which is a result of competitive pressures not experienced in government agencies. The conclusion that public-sector workers are more highly educated than comparable private sector workers, upon which higher pay and benefit levels is justified, is called into question by the fact that not all college degrees are equal (and may vary between public and private sector employees) and the possibility that governments are hiring overqualified workers because they face looser budget constraints than private companies (i.e., governments are overpaying for their labor).

There are other considerations outside the scope of the report that affect discussions of the cost of government services. Since retiree health care costs are expected to continue to rise rapidly, and public employees' retiree health care benefits are significantly greater than those of private sector employees, this will increase government workers' total compensation relative to comparable private sector employee compensation. Furthermore, even if we assume that public employees are underpaid, or at least not overpaid, that does not mean that the number of government workers is necessary or desirable, or that the cost and scope of government is not excessive.

The fact is that state and local government labor costs are continuing to escalate drastically. There is a reason why the City of Vallejo, California, cited skyrocketing pension costs as the chief cause of its fall into municipal bankruptcy, and why many other local governments in California and elsewhere are on the brink of bankruptcy. There is a reason why California's pension costs have been described as unsustainable by everyone from the chief actuary of the California Public Employees' Retirement System to Republican Gov. Arnold Schwarzenegger, to Democratic State Treasurer Bill Lockyer. There is a reason that governments at the federal, state, and local levels achieve significant cost savings by contracting with private sector businesses to provide a wide variety of services previously performed by government workers. State and local governments in California and across the nation must address public employee compensation levels if they are to maintain any sense of fiscal responsibility, particularly in these difficult economic times.

Adam B. Summers is a policy analyst at Reason Foundation.

Adam Summers is Policy Analyst

posted 01-06-2011 09:57 AM                  

By John Palatiello • Jan 5th, 2011 • Category: Government Reform

From New York to California, there is a ticking time bomb set to go off at any time. Unfunded public employee pension liabilities are choking governments, preventing investments in education and transportation, creating the need for tax increases and jeopardizing compliance with balanced budget laws.

Fortunately, some in Virginia are taking steps to prevent the Old Dominion from falling into such a morass.

The public pension morass is bigger, more wide ranging, and ultimately more costly than the financial crisis that prompted billions in bailouts. For years, elected officials have quietly succumbed to lobbying pressure by ASFCME, SEIU and other public sector worker unions, to, as Fortune magazine put it, “allow workers to dramatically spike their pre-retirement compensation, to retire on more than 100 percent of their pay, and to draw both their salaries and pensions, with guaranteed market returns, simultaneously.”

According to the Federal Reserve, the obligations of state and local governments have doubled in the past decade, to $2.4 trillion, a figure that excludes more than $1 trillion in unfunded pension and retiree health-care liabilities.

The Pew Center on the States looked at 231 state employee pensions and found the total required employer contribution in 2008 was $64 billion.
To pay this debt, taxpayers will have to spend $1 million a day for the next 2,740 years. That’s about $8,800 for each American household, on top of an estimated $120,000 share of the national debt.

Recently, outrageous government employee pension packages were exposed in the news media. Not only was there fraud among employees of Bell, California, but it was revealed that the city administrator of Vernon, California, population 91, earned $510,000 a year, not including health benefits. Imagine what his pension benefit will be.
After the revelation of these outrageous compensation packages, MSNBC asked viewers to submit other examples. The network received more than 1,000 tips in less than two weeks. The twenty most egregious were published.

In Virginia, a new law took effect July 1 that requires new state employees to contribute 5 percent of pay toward pensions, but gave local governing bodies the option of covering the cost for new hires. The General Assembly will consider new legislation in 2011 that would require all public employees — not just those hired after last June 30 — to pay 5 percent of their salary toward their pensions.

The fact is, taxpayers are faced with an enormous bill for the luxury of having too many government employees, making too much money (salary and benefits), for too long. The consequence is not only a stifling financial liability, but a government too big to succeed.

What should be done? Here are a few common sense steps:

posted 01-06-2011 10:03 AM                  

Robert Bernard Reich is an American political economist, professor, author, and political commentator. He served in three national administrations, including that of Presidents Ford, Carter, and as Secretary of Labor under President Bill Clinton, from 1993 to 1997.

He was appointed a member of President-elect Barack Obama's economic transition advisory board

Reich is a political commentator on programs including Hardball with Chris Matthews, Countdown with Keith Olbermann, This Week with George Stephanopoulos, CNBC's Kudlow & Company, and APM's Marketplace.

In 2002, he ran for Governor of Massachusetts. He also published an associated campaign book, I'll Be Short. Reich was the first Democratic candidate for a major political office to support same-sex marriage. He also pledged support for abortion rights, and strongly condemned capital punishment

In September 2005 Reich testified against John Roberts at his confirmation hearings for Chief Justice of the United States Supreme Court.

On April 18, 2008 Reich endorsed Barack Obama for President of the United States

In an interview with The New York Times, he explained that "I don't believe in redistribution of wealth for the sake of redistributing wealth. But I am concerned about how we can afford to pay for what we as a nation need to do."
In response to a question as to what to recommend to the incoming president regarding a fair and sustainable income and wealth distribution, Reich said, "Expand the Earned Income Tax Credit — a wage supplement for lower-income people, and finance it with a higher marginal income tax on the top five percent. For the longer term, invest in education for lower income communities, starting with early-childhood education and extending all the way up to better access to post-secondary education.

Reich is pro-union, saying "Unionization is not just good for workers in unions, unionization is very, very important for the economy overall, and would create broad benefits for the United States.