Deficits Are Not an Employee Compensation Problem

[mikekerstetter]

The conservative explanation for state budget deficits is that employee compensation for public-sector workers is out of control. But a close look at the facts demonstrates these claims are unjustified. Public-sector pay is not the cause of state budget deficits because public-sector compensation did not significantly increase in recent years. Instead, state tax revenues declined sharply amid the Great Recession—shortfalls made worse in some states by ill-advised tax cuts for businesses and the wealthy, as happened most famously in Wisconsin before its governor began pushing to eliminate public-sector collective bargaining rights.

To be sure, most states face severe budget problems—an average projected shortfall of 16.9 percent of fiscal year 2012 budgets. And there are some headline-grabbing cases of government employees receiving excessive wages and benefits. But budget shortfalls today were largely driven by the downturn in state revenue due to the Great Recession. State revenue is 12 percent below prerecession levels even as the demand for services and benefits such as unemployment insurance is high.

Indeed, an examination of state employee compensation shows just how little it has to do with state budget problems. Several previous studies find that public-sector employees make less than workers in comparable positions in the private sector. Public employees do have better health care and pensions—often needed to attract qualified employees to state government jobs such as police and firefighting. Even still, public-sector wages are significantly lower than those in the private sector, so total employee compensation is lower than in the private sector.

In addition, according to our analysis of state government expenditures, total state employee compensation, including wages and benefits, has not increased as a share of total state budget expenditures over the past 20 years. In fact, it has slightly decreased (see chart).




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[Gavin]

OK Mike, it's not the government workers wages that are to blame.

It is that our government is too big, tries to do to much, and employs to many people, all of which we can no longer afford.

Where, what, and whom do we cut?

[Doug Loss]

Mike, you say: "The conservative explanation for state budget deficits is that employee compensation for public-sector workers is out of control." That isn't true, and never was. While public sector employee compensation IS out of control, no conservative ever floated that as the sole explanation for state budget deficits. Gavin's right, the explanation for state budget deficits (and federal deficits, for that matter) is that there's just too much government, doing things that government has no responsibility or authority to do. That's the long and short of it.

[mikekerstetter]

Mar 13, 2011 13:14:32 GMT -5 Doug Loss said:

While public sector employee compensation IS out of control, no conservative ever floated that as the sole explanation for state budget deficits.

Facts state the truth about compensation is that they are still paid less than their private counterparts even with benefits and pension added it. And, it seems, that most republican administrations are looking at the public sector employees compensation to solve most of their financial woes. I don't see hardly any of them talking about getting rid of excess employees. Why is that?

[mikekerstetter]

Mar 13, 2011 10:53:10 GMT -5 Gavin said:

OK Mike, it's not the government workers wages that are to blame.

It is that our government is too big, tries to do to much, and employs to many people, all of which we can no longer afford.

Where, what, and whom do we cut?

That's a question to ask the republican administrations. I've got ideas. I don't hear many republican administrations looking to cut out the excess.

[Doug Loss]

'Facts state the truth about compensation is that they are still paid less than their private counterparts even with benefits and pension added it." Prove it. I don't believe that is true.

[mikekerstetter]

You can start with this report. I've included part of the conclusion, but the whole thing is 28 pages long. Enjoy the read.


Conclusion
In this study we found that state and local workers are compensated less than their private sector counterparts. We implemented a standard comparability exercise, using the CPS and following common methodological choices that reflect the heart of the discipline. Our results of lower compensation for state and local workers are consistent with previous findings, and we expand on them. The differentials were evident by 2000 in the work of others, and the patterns identified have either remained or grown since then. Although a comparison of unadjusted average earnings will show that wages are higher among jobs in state and local government, this result is largely due to the fact that the workers in those sectors have more education. Holding education and other characteristics the same, typical state and local workers earn an average of 11 percent less and 12 percent less, respectively, than comparable private sector workers.

There are several implications of our exercise. First, the compensation of state and local workers is not excessive. Second, this remains true when including benefits. Third, the pattern of results over the last 20 years has generally been one of declining relative earnings of state and local workers compared to similar private sector workers. Fourth, this remains true in most of the states that we examined, although some heterogeneity exists. These implications lead to the policy prescription that now is not the time to advocate for large-scale rollbacks in the compensation of state and local workers. Although the current recession calls for equal sacrifice, the long-term pattern indicates that state and local workers are not, on average, overcompensated. If the goal is to compensate state and local sector employees in a manner comparable to those in the private sector, the data do not call for reductions in state and local wages. If anything, they call for increases.