Thursday, June 10, 2010

The Two Americas: Private vs. Public Workers

According to this report from the BLS released yesterday, state and local governments spent an average of $39.81 per hour in March 2010 to compensate public-sector employees ($26.25 in wages and $13.56 for benefits). Total employer compensation costs for private industry workers averaged $27.73 per hour ($19.58 for wages and $8.15 for benefits), see chart above. 

Bottom Line: Government employees are compensated 44% more on average per hour than private-sector employees, with 34.1% higher monetary wages and 66.4% more in benefits.  On an annual basis, government workers make almost $80,000 on average with benefits (assuming a 40-hour week for 50 weeks), $24,000 more per year thatn the  average private-sector worker ($55,460 annual compensation). 

And one of the biggest differences between private and public employees is the "retirement" portion of benefits.  Government workers are paid $3.16 in retirement benefits for each hour worked, and almost 90% of these retirement benefits are in the form of "defined benefits" and the other 10% are for "defined contribution."  In contrast, private sector employees receive only $0.96 in retirement benefits for each hour worked, and more than 57% of this coverage is for "defined contribution" and less than 43% for "defined benefits." 

The fact that retirement benefits for public workers are more than three times as generous as those paid to private sector workers, and the fact that almost all pension programs for government workers are "defined benefits," helps explains why the fastest growing group of millionaires is..... government workers.

31 Comments:

At 6/10/2010 10:49 PM, Anonymous Anonymous said...

When is someone going to do an analysis of how many private sector jobs (based on tax rates) it takes to pay for 1 public sector job?

 
At 6/10/2010 11:01 PM, Anonymous grant said...

Heres is a big break for Obalmer he could save a huge amount of public money by putting most of these public sector jobs out to tender. After firing the current government employees and then replacing them with successful private tenders who would do the same work for the lower contract rate set by competition in the market place.
Of course current employees should be given the right to tender for their ex job as well and compete for it at the new successful tendered rate.

 
At 6/10/2010 11:04 PM, Blogger misterjosh said...

ugh. Nauseating.

 
At 6/10/2010 11:09 PM, Anonymous Bankin' Ho said...

Where do professors at public universities fall in that range?

 
At 6/10/2010 11:20 PM, Anonymous Hydra said...

Maybe, but it does not match my experience.

Each time I thought about taking public sector job, I would have had to take a huge initial cut to get the job.

 
At 6/10/2010 11:23 PM, Anonymous Lyle said...

To make it more clear the penision issue is primarily a state and local government one. Federal pensions were reformed in 1987. The basic annunity pension is 1.1% per year times the highest 3 years, which is not particularlly rich. Note in particular as compared to state and local plans overtime is not entered into the calculation. The plan includes social security and a 401k equivalent called the TSP that matches one for one to 5%.

The issue is really with state and local pensions which are far richer including overtime in the annuity calculation. The older plan was far richer.(check the site www.opm.gov/retire for the details of the federal program.

So I do think we need to distinguish between federal civil service and state and local civil service.

 
At 6/10/2010 11:27 PM, Anonymous Hydra said...

Heres is a big break for Obalmer he could save a huge amount of public money by putting most of these public sector jobs out to tender. After firing the current government employees and then replacing them with successful private tenders

This has been tried before. What happens is that the incompetent public sector employees become incompetent private sector employees, who lower the contract rate for everyone.

Government is then short on staff and they hire out ore positions including decision making ones.

Then you have government hiring private enterprise to make government decisions, which might be good privatedecisions but lousy government decisions, and it leads to graft, which inevitably leads to calls to bring more expertise inside government.

But government won't pay enough to get really skilled expertise, so you are right back at zero.

The only way Isee these numbers work is that private enterprise finds ways to use a whole lot of really unskilled people who have no place in government.

 
At 6/10/2010 11:29 PM, Anonymous Anonymous said...

Hydra, there will always be people who do better in private industry. And there are many who do way better in public jobs than they ever could in private industry. Actually there are far too many of those people.

The disturbing thing is the average is now clearly on the public side for even wages. Before, it took benefits to make the case. Now they win both ways, and even more if retirement age is factored in. I was shocked to find out some close friends are really close to retirement from their government jobs. They'll be drawing pensions for maybe 30 years.

 
At 6/11/2010 12:12 AM, Anonymous Titus Pullo said...

What do cabinet members make compared to CEOs of the Fortune 500? I'll bet it's a lot less. The same CEOs who can't build a car anyone wants or plug an oil leak on a well they ignored safety concerns. But they are obscenely paid for it.

 
At 6/11/2010 3:22 AM, Anonymous grant said...

It is now estimated that 30%of Americas labor force now work for a living as independent contractors that work as needed for themselves and not for any one employer.
This is a big change from the job security many Americans once enjoyed.
Ten years[and more]ago blue and white collar workers could count on a permanent job with big companies like Ford,Goodyear,IBM,GE,Who provided jobs for life with planned retirement.
Today employment prospects are liquid with new rapidly changing technology and work attitudes so now many work as they like with their own chosen hours.
These freelance contractors currently have little or no work and so cant pay health insurance premiums or everyday bills.
these independents do not have the safety net that payroll employees enjoy like unemployment insurance or even the right to get the labor department to collect past due wages for past work done.They have to fall back on their savings to survive along with food stamps and any available form of public assistance[at tax payers expense].
Non paying clients have to be chased through the courts at their expense.
Just compare this life to a very comfortable government worker. There is no comparison.

 
At 6/11/2010 3:30 AM, Blogger PeakTrader said...

The Obama Adminstration should've found ways to promote sustainable economic growth rather than wasting time hurting the rich and helping the poor, which will eventually harm both the rich and the poor.

 
At 6/11/2010 5:45 AM, Anonymous Anonymous said...

It pays to read the fine print:

Comparing private and public sector data

Compensation cost levels in State and local government should not be directly compared with levels in private industry. Differences between these sectors stem from factors such as variation in work activities and occupational structures. Manufacturing and sales, for example, make up a large part of private industry work activities but are rare in State and local government. Professional and administrative support occupations (including teachers) account for two-thirds of the State and local government workforce, compared with one-half of private industry.


Comparing a McJob to a teacher is lame. Apples to oranges. For instance, there is no difference in total compensation between the private sector and public sector in the management, professional and related occupational group.

 
At 6/11/2010 6:21 AM, Anonymous geoih said...

Quote from Grant: "... After firing the current government employees and then replacing them with successful private tenders who would do the same work for the lower contract rate set by competition in the market place."

This would only have a minimal impact because the now private workers are still being paid with public taxes. This is the basic problem with the whole idea of government work.

Anybody working for the government is being paid through taxes collected from the private sector. Yes, government employees also pay taxes, but that just means their protion of the tax pie is slightly reduced. In order to not be a burden on the private sector, a government employee would have to pay 100% taxes.

I understand that government workers do provide (some) services that the private sector wants and would pay for even without the government, but that doesn't change the accounting. As it stands now, private sector workers earn less money while paying for all of the salary and benefits of their better compensated (and less productive) government overlords (I mean public servants).

 
At 6/11/2010 6:36 AM, Blogger juandos said...

"Comparing a McJob to a teacher is lame"...

You're absolutely right...

Its sadly obvious that the teaching racket is telling the American taxpayer that money spent on a McJob has a better return on investment...

 
At 6/11/2010 10:35 AM, Anonymous Anonymous said...

Juandos, American schools are grouped with the best systems in the world, and are far from "failing".

Who cares if other nations have slightly higher levels of innovation? (which, incidentaly, depends on a lot of institutional factors beyond math and science education) You realize that we benefit from the free-rider externality here, right? Someone in Japan, Singapore or Finland studies like a crazy person through their whole academic career and invents the Next Great Thing. The my lazy tucus goes and buys the Next Great Thing. Wealth is consumption. I still win. Are American's hurt because HTML was developed by a Brit? This notion of international competitiveness is stupid. Our kids are literate and numerate. We could and should do better, but not because of a ranking or to beat Finland.

 
At 6/11/2010 12:06 PM, Anonymous Hydra said...

"They'll be drawing pensions for maybe 30 years."

I doubt it. More likely they will use the security of their pension to start some kind of business.

Yeah, they will still be be drawing pensions, but they will also be paying taxes to support them.

I still think there is a statistical story here that isn't being told. Besides, maybe you have to pay a lot to get people to take stultifying employment.

 
At 6/11/2010 12:51 PM, Anonymous morganovich said...

anon-

there are tons of government mcjobs.

ever been to DMV? met a meter maid? public janitors?

in san francisco, we pay our bus drivers $100k in cash + monstrous benefits.

that's hardly a management job (and sf muni has terrible performance and safety).

this notion that government jobs are somehow all higher end than those in the private sector is laughable.

the teachers at my high school (one of the best private schools in the country with tuition now up to $40k/year) make considerably less than their public school peers.

 
At 6/11/2010 1:08 PM, Blogger sethstorm said...


Besides, maybe you have to pay a lot to get people to take stultifying employment.

Do it. Make it worth more to work, and get the other side of the table(business) to stop dragging their feet. Then make sure both sides are acting in good faith, especially the businesses (whom have more incentive not to act in good faith).

 
At 6/11/2010 2:07 PM, Anonymous Anonymous said...

the teachers at my high school (one of the best private schools in the country with tuition now up to $40k/year) make considerably less than their public school peers.

Either you are a deplorable example of private education or your parents were ripped off considerably. I would bet the latter.

Is morganovich as dumb as his high school English teacher?

 
At 6/11/2010 4:13 PM, Blogger Paul said...

"Do it. Make it worth more to work, and get the other side of the table(business) to stop dragging their feet. Then make sure both sides are acting in good faith, especially the businesses (whom have more incentive not to act in good faith)."


Oh, to be a fly on the wall during a sethstorm job interview.

 
At 6/11/2010 4:42 PM, Blogger Ron H. said...

Paul said...

"Oh, to be a fly on the wall during a sethstorm job interview."

Heh! That would be a hoot, but I doubt that such interviews occur. He's still waiting for the knock on his door.

 
At 6/11/2010 4:52 PM, Blogger Ron H. said...

Anon @ 2:07 said...

Either you are a deplorable example of private education or your parents were ripped off considerably. I would bet the latter.

Is morganovich as dumb as his high school English teacher?


May I assume, then, that you are out of substantive arguments, as you have resorted to insults.?

 
At 6/11/2010 10:20 PM, Anonymous Anonymous said...

Well, it wasn't that long ago when private jobs generally paid better, though public jobs offered better benefits and job security. Having been a social worker myself for 12 years, I got burned out by the stress, the bureaucracy, the limitless mounds of anal retentive paper work, the cynicism one develops as particular (not all, but some) cases never quite get through the cracks, plus so-so pay that was never enough. So I decided to takes some classes part-time and landed a better paying, less stressful job in the private sector.

While there are certainly some cushy government jobs out there - and I can't tell you enough about bureaucracy! - the truth is many of them are hardly stress free or rewarding.

In fact, if you want to complain about the compensation gap, I would argue that it's because the private sector has been getting screwed for years. A factory worker who previously made $27 an hour is going to be hard press to find anything paying that much, or offering the same benefits - even with a two-year technical degree.

Besides, do you see many government workers pulling in seven-figure salaries?

 
At 6/11/2010 10:24 PM, Anonymous Anonymous said...

The difficulty will occur if states and cities cannot pay and go bankrupt. All of those unfunded liabilities will be wiped clean by a judge's hand! It is always best to earn your own money and fund your own retirement.

 
At 6/12/2010 1:38 AM, Blogger KauaiMark said...

I wonder how much of that $12/hr difference ends up as union contributions/support for individual politicians

 
At 6/12/2010 8:29 PM, Blogger juandos said...

"This has been tried before. What happens is that the incompetent public sector employees become incompetent private sector employees, who lower the contract rate for everyone"...

Really hydra? Maybe you can offer up a couple examples of this happening, right?

"Government is then short on staff and they hire out ore positions including decision making ones"...

Is that your experience at your local DMV office or whatever?

"But government won't pay enough to get really skilled expertise, so you are right back at zero"...

Apparently you've been out of the loop for quite a long time hydra...

"The only way I see these numbers work is that private enterprise finds ways to use a whole lot of really unskilled people who have no place in government"...

Have you heard of the EEOC?

 
At 6/13/2010 10:22 AM, Anonymous http://clifton.chadwick. wordpress.com said...

When I was a college student the expectation was to get a job in the private sector because it paid much better. I worked in South America for many years and came to realize the viccisitudes of gevernment employment, for example in Artgentina and Costa Rica. In the later case, 95% of college graduates assumed that they would go to work for the government, in jobs that effectively were sinecures: you spend the day drinking coffee and scratching your whatever.
It is very worrisome to find that now the same situation is happening in the USA.

 
At 6/13/2010 10:24 AM, Anonymous Clifton said...

When I was a college student the expectation was to get a job in the private sector because it paid much better. I worked in South America for many years and came to realize the viccisitudes of gevernment employment, for example in Artgentina and Costa Rica. In the later case, 95% of college graduates assumed that they would go to work for the government, in jobs that effectively were sinecures: you spend the day drinking coffee and scratching your whatever.
It is very worrisome to find that now the same situation is happening in the USA.

 
At 6/14/2010 9:09 AM, Anonymous Hydra said...

Really hydra? Maybe you can offer up a couple examples of this happening, right?

There have been several previous iterations of government downsizing and outsourcing, only to have the process reversed later.

It isn't clear to me that these pedulum swings have done much except give the revloving door a push. It also not clear whether there is a real economic benefit, ro whether the pendulm swings are merely politically induced.

I understand that government is often unresponsive or inefficient compared to private enterprise, but it works on a different time frame and with different standards.
I'm not convinced that EVERYTHING government does, it does badly.

 
At 6/14/2010 9:13 AM, Anonymous Hydra said...

Is that your experience at your local DMV office or whatever?

I have seen this happen at the building planning and permitting office, yes. They cut way back on staff and then had to hire temps (with poor English skills) when a buiding expansion came on.

The Temps (from private enterprise) made the place more of a zoo. They were unfamiliar with procedures, lacked real authority to make decisions, and everytie you went to check on something, a new person had your file.

 
At 6/14/2010 9:16 AM, Anonymous Hydra said...

"The only way I see these numbers work is that private enterprise finds ways to use a whole lot of really unskilled people who have no place in government"...

Have you heard of the EEOC?


Yes, but I would maintain that government outsources many low skill jobs such as maintenance and landscaping which could skew the results of a blanket public private wage comparison.

 

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