MacIver Institute Study Finds Government Employees Make 19 Percent More Than Private Sector Workers

MacIver News Service | November 14, 2012

[Madison, Wisc…] State and local government employees in Wisconsin make considerably more in base salary and more in total compensation than their peers in the private sector according to a new study released today by the John K. MacIver Institute for Public Policy.

Using 2007-2011 Census Bureau data, Wisconsin’s public sector workers take home, on average, 5% more in base salary than comparable private sector peers in Wisconsin.

When factoring total compensation–including benefits–the gap widens. State and local government employees make 19% more than their private sector counterparts.

“The argument that government workers are underpaid compared to similar employees in the private sector is an absolute myth,” said Brett Healy, MacIver Institute President. “The facts are clear: when you compare the pay and compensation levels for similar employees inside and outside of government, the government workers in Wisconsin make more than employees in the private sector–much more.”

Two nationally renowned economics professors, William Even from Ohio and David Macpherson from Texas, performed the analysis for the MacIver Institute.

Professor Even is the Raymond E. Glos Professor of Economics at Miami University in Oxford and Professor Macpherson is the E.M. Stevens Professor of Economics at Trinity University in San Antonio.

As the controversy surrounding Wisconsin’s recent public sector labor reforms reached its peak in 2011, a common talking point used by labor advocates was that government workers deserved greater protections and overall benefits because public sector employee pay was lower than comparable occupations in the private sector. This MacIver Institute report obliterates that theory.

The Big Labor compensation myth debunked by this study deserves renewed attention in light of Dane County Judge Juan Colas’ controversial ruling on Act 10.

In September, Judge Colas bucked the legislature by ruling parts of Act 10 unconstitutional. Since his ruling, Judge Colas has refused to stay his decision, despite opposition from citizens, duly elected officials and more than half of Wisconsin’s 72 counties that fear the budget implications brought on by Colas’ legislating from the bench.

Judge Colas’ ruling has thrust the issue of public sector compensation back into the spotlight, and organized labor is already rushing to renegotiate deals and negate post-Act 10 contracts that have saved Wisconsin taxpayers more than $2 billion according to a MacIver Institute Report released last month.

In September, the city of Madison Common Council held a Special Session to push through labor contracts no longer bound by the cost savings implemented by Act 10. This week, the Milwaukee Area Technical College opted to do the same when its unelected Board of Directors voted 5-4 to open negotiations almost one year before the current agreement is set to expire.

“Our study highlights the importance of the budget reforms passed by the legislature in 2011 and the dangers associated with Judge Colas’ ruling,” said Healy. “In reality, public sector compensation levels were helping to bankrupt our state, and they needed to be brought more in line with private sector pay and benefits for the sake of Wisconsin’s long-term fiscal health.”

Rather than rely on top-line Bureau of Labor Statistics (BLS) data, something the BLS itself frowns upon, Professors Even and Macpherson employed the “Human Capital” approach and used a variety of government data to conduct a detailed regression analysis that considers important variables that are otherwise ignored to compare public and private sector employees.

Factors considered in their study include:

➢ Similar work experience
➢ Education
➢ Sex
➢ Race
➢ Disability status
➢ Hours worked

Employee compensation for the study is comprised of:

➢ Annual wages
➢ Paid time off
➢ Health insurance
➢ Retiree health insurance
➢ Legally required benefits
➢ Pensions

When analyzing pensions, Professors Even and Macpherson included a markup to reflect a more accurate rate of return than projected by the public sector, thus holding them to a more realistic number. In short, the compensation numbers are not inflated by overly optimistic public sector pension projections.

Our researchers followed the direction of the Bureau of Labor Statistics, which warns that a direct, top-line analysis of their data should be avoided.

“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 parte 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.”
-BLS Website

Although the union-supported Economic Policy Institute has reached differing conclusions in their reports, they too have promoted this “Human Capital” approach used by Professors Even and Macpherson for statistical analysis of labor data.

Jeffery Keefe has written, “Comparing private and public employee earnings requires comparing employer costs for total hourly compensation, controlling for a variety of human capital attributes (education, experience, etc.)”

A nine-page appendix to this report is attached. It explains in complete detail the methodology used by Professors Even and Macpherson.

For more information, contact: Sean Lansing, 1.608.237.7290