Are Wisconsin public sector workers overcompensated?

by Harry on February 20, 2011

This EPI report was released February 10th (hence the slightly out-of-date language), and the answer, apparently, is no:

Walker is promoting public employee pay cuts, changes in collective bargaining laws, major benefits reductions, and a possible decertification of public employee unions as the antidote to the alleged overpayment of public employees in Wisconsin and the key to reducing the state’s budget deficit.

However, the data indicates that state and local government employees in Wisconsin are not overpaid. Comparisons controlling for education, experience, organizational size, gender, race, ethnicity, citizenship, and disability reveal that employees of both state and local governments in Wisconsin earn less than comparable private sector employees. On an annual basis, full-time state and local government employees in Wisconsin are undercompensated by 8.2% compared with otherwise similar private sector workers. This compensation disadvantage is smaller but still significant when hours worked are factored in. Full-time public employees work fewer annual hours, particularly employees with bachelor’s, master’s, and professional degrees (because many are teachers or university professors). When comparisons are made controlling for the difference in annual hours worked, full-time state and local government employees are undercompensated by 4.8%, compared with otherwise similar private sector workers. To summarize, our study shows that Wisconsin public employees earn 4.8% less in total compensation per hour than comparable full-time employees in Wisconsin’s private sector.

These compensation comparisons account for important factors that affect earnings, the most important of which is the educational levels of public employees. When comparing public and private sector pay it is essential to consider the much higher levels of education required by occupations in the public sector. As a consequence of these requirements, Wisconsin public sector workers are on average more highly educated than private sector workers; 59% of full-time Wisconsin public sector workers hold at least a four-year college degree, compared with 30% of full-time private sector workers. Wisconsin state and local governments pay college-educated employees 25% less in annual compensation, on average, than private employers. The compensation differential is greatest for professional employees, lawyers, and doctors. On the other hand, the public sector appears to set a floor on compensation, which benefits less-educated workers. The 1% of state and local government workers without high school diplomas earn more than comparably educated workers in the private sector.

{ 31 comments }

1

Holden Pattern 02.20.11 at 2:47 pm

What government workers do have is somewhat more security than private sector workers. And that is of course intolerable. All workers should be just as insecure as day laborers are today, so they are, how shall we say it… well behaved and properly motivated.

What fascinates me is the tendency of people to say “Why do those people get something I don’t have?” instead of “How can I get what they’ve got?” The movement conservative politics of spite are impressively successful.

2

Tim Worstall 02.20.11 at 3:02 pm

“Are Wisconsin public sector workers overcompensated?”

Compared to what?

The amount the current politicians are willing to pay them? Apparently so.

According to supply and demand? On other threads we’ve been told that people line up for public sector jobs. Apparently so then.

Compared to private sector workers, apparently not.

Plenty of room there for everyone to make their own definitions.

“When comparing public and private sector pay it is essential to consider the much higher levels of education required by occupations in the public sector. “

Well, yes, although there’s been not a little forcing here. There’s long been attempts to insist that public setor workers should be highly qualified (on paper that is) because that’s a justification for higher pay.

3

Harry 02.20.11 at 3:18 pm

Except when it comes to the Chief of the State Troopers:
http://crookedtimber.org/2011/02/20/does-wisconsin-have-the-best-possible-chief-of-the-state-patrol/

But I agree with your last comment, Tim, in fact sometimes the insistence on qualifications is utterly perverse — in my state School Principals have to get a license, which takes 2 years of part time study. Hard working classroom teachers with families aren’t going to do that (unless they have a spouse like me) so gym teachers and athletic coaches become principals. (Do not laugh, Tim, that’s what my dad did).

Has anyone ever studied the extent to which small businesses are subsidized by public sector health benefits? Half the bars around here are owned by the spouses of public sector workers — lots of realtors are similarly espoused.

4

joe koss 02.20.11 at 3:23 pm

5

Henri Vieuxtemps 02.20.11 at 3:33 pm

If every job people line up for is overcompensated, then pretty much everybody is overpaid, and no job is underpaid, by definition.

6

Salient 02.20.11 at 4:25 pm

If every job people line up for is overcompensated, then pretty much everybody is overpaid, and no job is underpaid, by definition.

Indeed, while that ought to be a reduction-to-absurdity in any sane universe, it’s actually just a recapitulation of the standard argument for eliminating the sinister socialist plot device of ‘minimum wage’ and for rolling back all those worker-protecting, productivity-destroying regulations.

Of course, my dad (and at least half the public-sector workers in WI that I knew through him) worked in the public sector for less pay because he felt like he was contributing to Good Things. What fascinates me is how unambiguously callous people can be in their willingness to demand that we exploit that desire to do good, i.e.: public-sector work pays less, therefore people who go into public-sector work are do-gooders, therefore we should pay them less because they’re not motivated by money and will work for peanuts anyway, out of do-gooderism. So we should refuse to offer above-poverty compensation for public-sector work because public work is moral, and poverty is moral, and anyone sanctimonious enough to work for the government ought to be taught a lesson about how tough the real world is (but they should be happy to be taught that lesson and live in poverty, because they must be a do-gooder type — why else would they go into lower-paid work?)

Public-sector workers get confused with priests.

7

jazzbumpa 02.20.11 at 4:29 pm

Menzie Chinn shows the compensation facts here.

http://www.econbrowser.com/archives/2011/02/analogy_watch_c.html

This is not at al about the money, and all about union busting and a desire for bought elections and permanent one-party Rethug rule. It’s the next step after Citizens United to roll back the New Deal, The Constitution, and the Enlightenment. It is the real road to serfdom. We are on our way to the 12th century.

JzB

8

Quintilian 02.20.11 at 4:41 pm

I’m not sure how this works:

“Full-time public employees work fewer annual hours, particularly employees with bachelor’s, master’s, and professional degrees (because many are teachers or university professors). “

I think this whole “professors don’t work many hours and they have summers off” bullpucky needs to be put to bed. I am a full-time faculty member, and when I compare my annualized hours to those of my private-sector friends I see that I work far longer hours. I average about 70 hours/week during the school year and about 40/week during the summer. Finally, my salary is far less than those who work fewer hours, and is shamefully less when you control for the amount of schooling I invested in so as to reach this position.

I suspect, but don’t know personally, that K-12 teachers also work far harder than most of the public gives them credit for.

9

Gene O'Grady 02.20.11 at 4:44 pm

Harry makes a good point in #3 that can be taken further. Back in the days when the old Bell System was a semi-public (i.e., regulated) entity, the quality service reps (now replaced by call centers that can’t help you) were usually the wives of independent small businessmen for whom they provided the benefits and measure of protection against economic ups and downs. Don’t recall seeing many economists focusing on that as part of the vaunted culture of innovation in Santa Clara county.

10

Tim Worstall 02.20.11 at 5:00 pm

“Has anyone ever studied the extent to which small businesses are subsidized by public sector health benefits?”

Dean Baker (EPI at the time again I think?) has pointed out that the US has a much lower (surprised me too) small business formation rate than many other places. He thinks it’s exactly that, the lack of state paid health care, which explains it. Dropping out of a large corporation means giving up decent health insurance: unless, as you point out, you’re getting it elsewhere in the family.

Although the cynic within me would posit that *public sector* spouses running the bars might have more to do with having friends in the licence and sanitation departments…….

11

off_leash 02.20.11 at 5:39 pm

According to their website the Economic Policy Institute receives 29% of their funding from labor unions.

12

ScentOfViolets 02.20.11 at 7:20 pm

What government workers do have is somewhat more security than private sector workers. And that is of course intolerable. All workers should be just as insecure as day laborers are today, so they are, how shall we say it… well behaved and properly motivated.

Way back when – say 2005 – the standard argument was that public employees were paid less than their private-sector counterparts, but that they had more job security. Which when dilated upon by conservatives was taken to mean that those in the public sector weren’t heroic risk-takers and also obviously of less-than-average qualifications. Obviously: they were avoiding competing in an arena where they were sure to lose. Never mind that job security in and of itself is a good thing or that there can be other motivations than monetary remuneration.

Now in 2011, that old conservative spin is no longer operative. No, it’s not that those incompetent risk-averse cowards made an intelligent decision to go for security as opposed to a shot at the golden ring. No, now it’s “Why should they have those benefits those in the private sector lack?”

The fact that this position amounts to reneging on the original deal (shades of GM employees being forced to give up benefits that were negotiated in good faith and which they had already paid for) is studiously not discussed. As in 1984, the past is busily being reinvented for the masses. No sanctity of contracts for them!

13

CP 02.20.11 at 7:38 pm

If public sector workers are more unionized than private sector workers, then why don’t they make more than private sector workers?

It would be interesting to have data comparing public sector workers with unions versus those without. This would be more complex to assess because it would involve cross-state comparisons.

14

John 02.20.11 at 8:40 pm

So, if declining revenues are a legitimate reason to unilaterally break a contract, am I allowed to unilaterally change the amount of money I owe the bank on my house since my wife lost her job and I took a pay cut last year? Similarly, is it OK for me to pay the convenience store less for a gallon of gas since we are making less money?

We constantly hear how families must make do with their budgets, but it seems to me that we are not allowed to just refuse to pay the prices that others are demanding. In the case of public employees, the government even agreed to those prices.

15

Dr. Hilarius 02.20.11 at 9:32 pm

Holden Pattern’s comment is dead on. That job security and meaningful collective are anathema to the right makes perfect sense; the spite and envy of non-unionized workers makes no sense but is widespread.

Here in Seattle, Boeing has provided good pay for machinist and assembly jobs. The availability of these jobs has undoubtably supported higher wages for non-union jobs due the ability of some workers to move to union work and the general expectation in the community for wages and benefits. Increasingly, however, union workers seeking to maintain their advantages are portrayed as greedy and as somehow taking money away from the community.

16

Sufferin' Succotash 02.21.11 at 12:45 am

@Holden Pattern
What fascinates me is the tendency of people to say “Why do those people get something I don’t have?” instead of “How can I get what they’ve got?” The movement conservative politics of spite are impressively successful.

The subtext: “why shouldn’t public employees be as underpaid as almost everyone else?”

17

nick 02.21.11 at 2:58 am

Indeed, public sector benefits subsidize all kinds of start-up risk-taking ventures, and the left should talk way more about that. Republican rhetoric is about being pro-business; their actions, by contrast, support the interests of large established rent-seeking entities: this contradiction seems invisible to most of America.

But to all the people upthread wondering about false consciousness, do you really disagree that argument
a) the existence of organized labor helps the non-union poor person
has the substantial disadvantage of being clearly more complex and abstract than argument
b) everybody should share the pain.

The metaphor of belt-tightening household, the current working figure for economic discourse in this country, renders a) incomprehensible, whereas b) comes across as mature, realistic: b) allows spite to masquerade as fair-mindedness

18

Sev 02.21.11 at 3:07 am

Undoubtedly Gov Walker is simply trying to improve the productivity of the workforce, and, ya know, get some useful work out of the lazy bums:
http://www.lawyersgunsmoneyblog.com/2011/02/but-i-thought-union-busting-solved-all-educational-problems

19

Dr. Hilarius 02.21.11 at 3:44 am

If unions and taxes are major obstacles to economic growth you would expect South Carolina et al. to be the economic power houses of the nation.

Some of the blame for the de-unionization of America lies with the unions themselves for their failure to bring service employees and other low-wage workers into the fold. Blame also the utter failure of the public schools to teach anything meaningful about labor history. Ask almost anyone under the age of 70 about John L. Lewis and you will get a blank stare. Same for any other major labor figure. This at the same time there is still an expectation of a 40-hour week and overtime pay. Go figure.

20

praisegod barebones 02.21.11 at 6:18 am

Do not laugh, Tim, that’s what my dad did.

Difficult to see that as an an argument that a policy that results in that is a bad thing….
(Harry’s dad becoming a head-teacher, that is, not Tim laughing.)

(For the mystified – which may include Harry himself – his Dad was my Dad’s boss for a while – and the only person he worked under that I ever heard my Dad speak highly of.)

21

Harry 02.21.11 at 12:17 pm

Sorry, what I meant was that my dad laughed when I told him that, and didn’t believe me till I showed him chapter and verse (he was a history teacher, and never actually became a head, he oehow skipped that). Thanks for the nice words about him pg.

22

Brett Bellmore 02.21.11 at 12:34 pm

If unions and taxes are major obstacles to economic growth you would expect South Carolina et al. to be the economic power houses of the nation.

Funny you should say that; When I lost my job in Michigan a couple years back, where did I find a job? In South Carolina. It was a close thing, though, I had another job offer pending in Kentucky.

23

ajay 02.21.11 at 3:26 pm

22: even you can’t truly believe that “state that CEOs think is the best for business” is the same as “most economically successful state”, Brett. You’re just trying it on.

Back in the real world, South Carolina is one of the poorest states in the union. It’s also seen below-average economic growth.

24

tom beebe st louis 02.21.11 at 3:34 pm

Why not tell the protesters to ask the taxpayers to accept tax increases to cover the cost of their wages and benefits? That would be analagous to asking buyers of consumer goods to pay more for increased wages for the workers who produce them. The results can be seen on every highway; more non-union made autos.

25

SamChevre 02.21.11 at 3:40 pm

Putting on my geek hat, they’re getting the numbers wrong: they aren’t discounting pensions by likelihood of receiving them. (This is a common error for non-pensions people to make.) If you have exactly the same on-paper pension structure, but one company has higher turnover, the company with lower turnover has a much-higher-cost pension.

26

Andrew 02.22.11 at 5:21 am

Here’s a simple way to think about Wisconsin, and beyond:

Suppose that an economy is built with the services of two groups of workers: let’s call them Teachers and Bankers. When choosing jobs at the start of their careers, Teachers say that they aren’t fans of lots of risks. They will accept lower current compensation (salaries and bonuses), but they’d like job security, and they’d like a good pension in retirement.

Bankers say they’re very comfortable with risk, provided they have the chance to earn high rewards for bearing this risk. They want lots of salary and bonuses as current compensation; they may save some of this to fund their retirement, and they’ll take their lumps (pink slips) if they don’t perform.

For a while, things run pretty well: Bankers do lots of clever financial engineering and earn large salaries and bonuses, Teachers educate their own and Bankers’ youngsters and check off the years before they retire.

Then – Oh Noes! The financial engineering comes unstuck, and the Bankers lose lots and lots of money. The Humanity! Fortunately, as we know, the Bankers had accepted that with reward comes risk, so they cheerfully prepare to shoulder much lower salaries and bonuses for a while, and the Teachers carry on as before, educating the young ‘uns and getting closer to a comfortable and well deserved retirement.

Or do they? It seems I’ve left out a group of people – let’s call them Organizers – who are responsible for Making Some Rules and seeing that Rules Are Followed. And as far as I can make out, the Organizers are convinced that everyone will be Very Badly Off Indeed if there are fewer Bankers in the labor force, and if Bankers’ current pay and bonuses are sharply reduced. So the Organizers do their level best to see that Bankers don’t feel too despondent about losing all that money, and arrange things so that more money is made available to Bankers. The Bankers feel that the Organizers aren’t as gracious as they might be about these arrangements, but they still feel honor bound to keep accepting big salaries and bonuses.

Meanwhile, even though the number of young ‘uns needing to be properly schooled and socialized hasn’t gone down at all, some Organizers feel that the right response to the Bankers losing lots of money is that Teachers should Step Up To The Plate. Yes, these Organizers say, we did agree that you should have security and a good retirement, and you’d take much lower salaries and bonuses along the way. But be good sorts and contribute for the Public Good: and no, we can’t retroactively raise your salaries in compensation for taking back the things you’d counted on.

Who do you think you are, anyway. Bankers?

27

Harry 02.22.11 at 5:42 am

tom beebe — as I’ve emphasized the rhetoric is all about the collective bargaining issues, not benefits — on which people think there will have to be cuts, and are fine with that. Two large unions have offered to support a bill making all the cuts Walker proposes, and he has rejected that. Because what he wants to do is ensure that workers have the least possible bargaining power when it comes to the struggle over the fruits of future growth – he really isn’t fundamentally interested in the budget, and his actions have made that vividly clear.

28

Myles 02.22.11 at 5:51 am

Back in the real world, South Carolina is one of the poorest states in the union. It’s also seen below-average economic growth.

Funnily enough, the greatest agglomeration of rich people I have known in the U.S. come from Boston, NYC area, DC-Virginia-Maryland, and Bay Area. None of them business-friendly areas by the normal standards.

29

nick s 02.22.11 at 6:07 am

That chart posted by Brett, ranking California and NY at the bottom? The CEO survey equivalent of “nobody goes there, it’s too crowded.” Hilarious. Meanwhile, South Carolina remains too small for a republic, too large for an insane asylum.

30

SamChevre 02.22.11 at 1:28 pm

Suppose that an economy is built with the services of two groups of workers: let’s call them Teachers and Bankers. When choosing jobs at the start of their careers, Teachers say that they aren’t fans of lots of risks….

The analogy fails because it leaves out the Wal-mart workers and the auto workers.

31

chris 02.22.11 at 2:29 pm

@28: Unless the normal standards include the presence of customers, of course. It’s difficult for a lawyer in Montana to represent clients in NYC or DC, even more difficult for a doctor to treat them; yet doctors and lawyers are, by any ordinary standards, rich people, and an agglomeration of them is an agglomeration of rich people.

Not every business can be carried on at the end of a 1000 mile shipping chain (and even then, brick-and-mortar retail has to locate near the customers).

What kind of businessman ignores the presence of customers when deciding which areas are “business friendly”?

Comments on this entry are closed.