One more data point in the public employee compensation debate

Public-sector workers provide services on which we all rely. If anything, they are undercompensated relative to similarly educated private-sector workers.

Andrew Cannon photo
Andrew Cannon

In the discussion of public workers and their compensation, let’s not lose sight of basic facts.

First, we rely on public workers every day. We may not see the public workers on a daily basis, but we certainly benefit from their work and services daily. Many of those services are such a normal part of our lives that we don’t even think about it.

So think about it for a minute. When you flush the toilet and the wastewater goes away but clean water comes out of your kitchen faucet, that’s the work of public-sector employees. The garbage and recycling you left on your curb Monday night did not magically disappear Tuesday morning; city sanitation workers collected that waste and took it away. Public employees educate our children in our elementary, middle and high schools and in our community colleges and universities. They protect our neighborhoods and respond to emergencies. They treat our ill or injured relatives in hospitals and clinics; they keep our roads in working order and ensure that traffic signals work properly; they work to protect kids in dire circumstances.

Second, the reality is that these workers are underpaid when you make a fair comparison to comparable private-sector workers. IPP’s “Apples to Apples: Private-Sector and Public-Sector Compensation in Iowa” report highlighted this reality last February. Most public-sector workers earn less than similarly educated private-sector workers. When benefits are included, the gap in Iowa narrows but still remains.

Ours was not the only report to issue such findings. Such findings have been replicated again and again, all over the nation. Some reports found that benefits erased the compensation gap or even gave public workers a slight “advantage”; others matched Iowa’s findings in that benefits narrowed the gap but did not completely eliminate it.

Well, here’s another data point. “Comparing Compensation: State-Local Versus Private Sector Workers,” written by Boston College researchers, echoes many of the findings of the IPP report (as well as reports from the Economic Policy Institute, the Institute for Research on Labor and Employment at UC-Berkeley, and the Center for State and Local Government Excellence studies).

The new Boston College report is notable for another reason, however. It examines assertions designed to undermine or call into question the findings of studies like IPP’s. Specifically, the report includes early retiree health benefits in the benefit package, adjusts for differences in pension/retirement packages between the two sectors, and examines the claim that public employees enjoy greater job security than private sector workers (when controlled for education level, they do not).

In sum, state and local government workers are paid about 9.5 percent less than private-sector workers. When benefit packages are included, the gap shrinks, but private-sector workers come out about 4 percent better.

Public-sector workers provide services on which we all rely. If anything, they are undercompensated relative to similarly educated private-sector workers. Should the debate around public employee compensation continue in coming months, let’s remember those two simple facts.

Better yet, let’s remind our family, friends, neighbors and elected representatives of those facts if the opportunity and need should arise.

Posted by Andrew Cannon, Research Associate

New York Times study confirms IPP report

Despite the different methodologies and the different datasets, the numbers tell the same story: State government workers with a college degree or more — over two-thirds of Iowa’s public sector workforce — are paid less than college-educated private sector workers.

Andrew Cannon photo
Andrew Cannon

The New York Times story comparing the earnings of private-sector employees with state government employees confirms what the Iowa Policy Project found in a new report the same week: When you control for education, most state government employees are paid less than their private-sector peers.

Despite the similar findings, our study and the Times study used different approaches.

First, the Times study was more limited in scope, looking only at state government workers, while our study looked at state and local government employees. This matters because local government workers, as our analysis showed, are compensated even more poorly than state government workers.

Our study also accounted for factors that are known to affect compensation beyond education, such as work experience, firm size, sex, race, and annual hours worked. In addition, our study attempted to account for the effect of the public sector’s more generous benefits packages. The Times story looked only at wages.

Second, the Times used slightly different methodology and a different data source than we used. The difference in categorizing education was the most important difference in methodology between our report and the Times’ story. Workers with associate’s, bachelor’s, master’s, professional and doctoral degrees were all lumped together in the Times report as one group, and workers with some college but no degree, a high school diploma, or workers with less than a high school education as the second category.

Categorizing workers that way distorts the picture. It inflates wages in the public sector, as a much larger proportion of state government workers have master’s, professional and doctoral degrees, and a smaller proportion of state workers have an associate’s degree, than in the private sector. Figure 1 in our analysis demonstrates the key differences in educational distribution among the sectors.

Our study also looked into each educational category, comparing, for instance, public-sector workers with a bachelor’s degree with private-sector workers with a bachelor’s degree. Thus the table that accompanied the Times story is not comparable to the results in Table 1 of our study.

Using the data set with which I conducted our study — the Census Bureau’s Current Population Survey — I compared median pay between the two sectors across the broad educational categories used in the Times story.

Despite the different methodologies and the different datasets, the numbers tell the same story: State government workers with a college degree or more — over two-thirds of Iowa’s public sector workforce — are paid less than college-educated private sector workers.

The Times study found that college-educated state employees earn 6.9 percent less than college-educated private-sector workers in Iowa. The analysis I conducted with our dataset was virtually indistinguishable, finding a 6.1 percent differential.

Among less-educated workers, our findings confirmed the Times, though the 19 percent state-government advantage reported by the Times outstripped the advantage in our data set by 8 percentage points.

The Times has made a valuable contribution to the discussion on public-sector and private-sector compensation. In addition to broadening the discussion by virtue of its vast readership, the Times also independently confirmed the analysis by IPP and the several different statelevel analyses conducted by the Economic Policy Institute. When the educational differences between the private- and public-sectors are accounted for, it is clear that most public employees could be making more money in the private sector.

Posted by Andrew Cannon, Research Associate