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Research says public sector pay, benefits better than what is available in private sector

Research says public sector pay, benefits better than what is available in private sector

Parrish Miller
October 15, 2012
Parrish Miller
October 15, 2012

New research compiled by economists David Macpherson (Trinity University) and William Even (Miami University) shows that after accounting for variations in the makeup of the workforce, public employees nationwide and in Idaho enjoy a pay and benefit package that noticeably outstrips their private sector counterparts.

According to the U.S. Bureau of Labor Statistics (BLS), the total employer compensation costs for workers in private industry averaged $28.80 per hour worked in June 2012. In that same month, the total employer compensation costs for state and local government workers averaged $41.10 per hour worked. Therefore, on average, public employees earned 43 percent more than those in the private sector.

According to this new research regarding the state of Idaho, although perhaps not quite as dramatic as that unadjusted overall average national discrepancy of 43 percent, Idaho's public sector employees still enjoy an average 10.6 percent compensation bump over their private sector equivalents.

The BLS attempts to mitigate the impact of its own findings, saying that a lack of manufacturing and sales jobs in the public sector combined with a higher level of professional and administrative support jobs account for the bulk of compensation discrepancies.

The research done by Macpherson and Even has been able to been able to account for these substantial variations in the workforce by employing a "Human Capital" approach that uses a variety of government datasets and regression analysis to compare public and private employees of similar work experience, education, sex, race and disability status. It also controls for the number of annual hours worked.

One factor not considered in this study, but which also tips the scale in favor of public employees, is job tenure. According to the BLS, on average, job tenure is higher in the public sector and layoff and quit rates are considerably lower.

Employers offering benefits to their employees instead of just salaries is actually a relatively recent phenomenon that dates back to World War II when Congress created a loophole permitting businesses to circumvent wartime wage and price controls. This loophole not only allowed employer-paid health insurance to be exempt from the wage controls, but also to be exempt from income taxes. This new law sparked a societal transition and today as much as 40 percent of the value of an employee's compensation may come in some form other than just paid income.

Not everyone values benefits as highly as wages, however. Kaleb (last name withheld by request) with Gem State Staffing in Boise said that his company places people in both public and private sector jobs, and in his experience private sector jobs offer higher starting pay while public sector jobs offer better benefits. Which is worth more? "I guess it's how much you use them [the benefits]," Kaleb said. "I guess I would probably rather have the higher wage."

State and local governments have been hit hard by the recession in many cases and have been perceived by some as unfairly cutting salaries and benefits to public employees, but even the most recent data does not substantiate these claims in the vast majority of cases. Nationally, public employees enjoy a compensation package worth 15 percent more on average than their private sector counterparts.

There are substantial regional variations, but eight out of nine census divisions saw a notable public sector premium with just one posting a slight public sector lag of less than 2 percent. The division with the greatest discrepancy was the Middle Atlantic Division including New York, New Jersey and Pennsylvania. Public employees there receive an average compensation package worth more than 34 percent above what is received by comparable private sector workers.

The Mountain Division, which includes Idaho and seven other states, was ranked exactly in the middle of the nine divisions with an average gap of nearly 14 percent between what is paid to public sector employees and what is paid to their private sector equivalents.

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