Public sector pay: reasonable or excessive?

gov. scott walker’s victory in curbing collective bargaining rights of Wisconsin public sector workers casts a spotlight on the issue of disparities between public and private sector compensation. The same issue—whether public sector workers are getting overly generous pay and benefits—is simmering here in Massa­chusetts, particularly with the state facing huge budget challenges this year.

At first glance, disparities between compensation (wages plus benefits) in the state’s public and private sectors seem large. The most recent data from the US Bureau of Economic Analysis (BEA) show state and local government jobs in Massachusetts offer 22 percent and 15 percent more compensation than private sector jobs, respectively. But these disparities in gross earnings can be misleading. Jobs in the public sector typically require more education and training, which could explain the appearance of additional compensation when looking at the BEA’s raw figures.

Still, BEA numbers do reveal some useful facts about compensation for the Commonwealth’s state and local workers.

First, growth in compensation for public sector employees in Massachusetts outpaced the private sector in recent years, but overall, public sector workers aren’t doing much better relative to their private sector counterparts than they have in the past. Between 2000 and 2008, compensation per job in the private sector fell by 3 percent. But for state and local workers, compensation continued to rise (13 percent and 6 percent, respectively). While public sector workers did relatively well in the slow growth 2000s, private sector workers seem to do much better in a strong economy. In the 1990s, their earnings increased by 14 percent, while compensation for state and local workers grew at less than half that rate.

All told, disparities between public and private sector pay in Massa­chu­setts aren’t significantly larger now than they have been over the last two decades. The gap actually peaked in 1994, when state workers earned 29 percent more than private sector workers. The state-private sector pay gap is slightly larger now than the average over the last two decades, while the gap between local government and private sector compensation is a bit smaller.

The second interesting find in the BEA data is the relatively modest disparity between public and private sector pay in Massachusetts in contrast to other states. Only three states (Mis­s­ouri, Indiana, and Pennsylvania) have smaller gaps between state government compensation and private sector compensation. This relative parity isn’t driv­en by the state’s high private sector pay. Other wealthy states, including Connecticut (32nd) and New Jersey (41st), have much larger disparities between public and private sector compensation.

Unionization doesn’t seem to explain this variation, either. Nearly two-thirds of state and local workers in Massachusetts are represented by unions compared with less than half in Pennsylvania. Despite this dramatic difference in collective bargaining power, ratios of state to private sector compensation for the two states are nearly identical.

Some caution is needed in interpreting BEA figures, but they do give support to two conclusions.

First, Massachusetts local governments appear to have done better than the state at tightening their belts in recent years. These compensation figures in­clude fast-rising municipal health care costs. Even with those costs, adjusted for inflation, local governments held compensation growth flat over the last four years, while state compensation grew by nearly 2 percent. With lawmakers cutting local aid once again, they must be sure state government is bearing an equal burden.

Second, public sector pay doesn’t seem to be as bloated as some might assume and cuts could have real consequences. Voters are still feeling the recession and don’t have much of an appetite for overpaid public sector workers. But the economy is growing and private sector pay is rising again. Before we give public employees encouragement to leave government, elected leaders might remind voters about the critical services public employees provide.


Ben Forman is research director at MassINC. Katie McGinn is a Northeastern University student and an intern at MassINC.

 

Meet the Author

Ben Forman

Research Director, MassINC

About Ben Forman

Benjamin Forman is MassINC’s research director. He coordinates the development of the organization’s research agenda and oversees production of research reports. Ben has authored a number of MassINC publications and he speaks frequently to organizations and media across Massachusetts.

About Ben Forman

Benjamin Forman is MassINC’s research director. He coordinates the development of the organization’s research agenda and oversees production of research reports. Ben has authored a number of MassINC publications and he speaks frequently to organizations and media across Massachusetts.

Meet the Author