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Are Public Sector Workers Overpaid?


TRNN REPLAY Jeff Thompson: New study shows experienced state workers paid less than private sector -   October 25, 2010
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Bio

Jeffrey Thompson, Assistant Research Professor in Economics, University of Massachusetts at Amherst, focuses primarily on domestic economic policy, with particular emphasis on the New England region and public finance at the state and local government levels. Jeffrey comes to PERI from Syracuse University, where he recently completed his Ph.D. in economics with a dissertation on how migration influences the ability of states to use their tax codes to redistribute income. Prior to his Ph.D. work, Jeffrey was a labor analyst at the Oregon Center for Public Policy for six years and received his Master's degree from the New School for Social Research.

Transcript

Are Public Sector Workers Overpaid?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. As the November elections are only a few weeks away, one of the debates that we are hearing is about the payment of state, federal, municipal employees, that public employees are just paid too much, and it causes too much taxes to be paid by everybody else, and that sucks money out of the economy that could have been invested more productively. What's the truth of this? Are in fact state and municipal employees paid too much? Now joining us from the PERI institute in Amherst, Massachusetts, is Jeffrey Thompson, who has done a study about just this, comparing the wages of state and local employees to the private sector. Thanks for joining us, Jeff.

ASST. PROF. JEFFREY THOMPSON, PERI, UMASS: Thanks for having me.

JAY: So what did you find?

THOMPSON: We found that if you just look at the wages paid in the private sector versus state and local governments, that at first blush it does look like there's higher pay for state and local governments. But that's only because state and local governments tend to employ much more highly educated workers and older workers. These are factors that drive the skill of the workforce. And once you adjust for those skill-related factors, the state and local government employees in fact earn less. So before the adjustments, the public sector workers get 13 percent higher wages nationally; after those adjustments, they get 4 percent lower wages.

JAY: So just to be clear about this, so it's when you take an average of everyone working in the private sector and compare it to everybody working at the state sector. You did a study specifically on New England, but you also reference studies that have been done in other states. Is that right?

THOMPSON: That's right. And we also do include some figures for the national level as well. Those figures I just cited to you, for example, are for the national totals. In New England, the unadjusted wage premium in the state and local sector is 11 percent. Once you adjust for skill factors, the wage penalty phase to the public sector is 3 percent, 3 percent lower wages if you work for a state or local government.

JAY: State and local governments tend to have older, more experienced, and more educated people, and they get paid more because of their qualifications, rather than the fact they're just in the public service.

THOMPSON: That's right.

JAY: Okay. So one of the counter arguments will be that it's difficult to get rid of people in the public sector because of unionization. And we know the public sector's more unionized than the private sector, so people tend to be there longer and older. Are they necessarily more qualified, I guess, will be one of the arguments.

THOMPSON: That's a point that can be raised, and that's fine, but I think the overwhelming factor that determines why there are older and more highly educated workers is the functions performed by state and local governments. The state and local sector does a lot more work in higher education and public education. That's the reason for the credentials being there, and it's also a good reason for the experience, and so the older workforce. If you want to raise issues, I think any local government has a premium on providing services efficiently and wants to be able to have a productive workforce. So those issues, I think, are relevant. But that's not the driving factor behind the wages that are earned by workers in those sectors.

JAY: So let's assume that people do urban planning and more complicated budgetary issues and all the more complex functions that take place in the public service. Let's assume that they're more experienced, more educated, and deserve more pay. And what you're saying, in fact, if the same people doing similar jobs in the private sector, that they're actually getting paid and compensated less in the public sector than in the private. But let's put them aside for a moment. What about less skilled starting wages? How does that compare between public and private?

THOMPSON: The lower-skilled workers in the public sector do earn a little bit more than their counterparts in the private sector. In New England, for example, if you look at the 10th percentile of the wage distribution�so these are the lower-skilled workers�for example, public sector workers earn 5 percent more than their peers in the private sector. If you look at educational credentials for the US average for workers with just a high school degree, they're going to earn 2.5 percent more in the public sector than in the private sector. So there is a small wage advantage for lower-skilled workers. But before we make too much of that premium, I think it's also important to consider what those wage levels actually are. So, for example, at the federal level, at the 10th percentile, the wage distribution, the actual wage being earned is $8.25 an hour, and if you're in public sector, you earn 5 percent or 6 percent more. So at the bottom end there's a bit of a boost in the public sector, but it's very low wages.

JAY: Yeah, you're talking very little actual difference in real money.

THOMPSON: That's right.

JAY: Now, the other thing is, I guess, to compare oranges to oranges. The public sector's very unionized, where the majority of the private sector is not. The private sector's only unionized at 8 percent. So if you're comparing unionized wages to unionized wages public-private, do you know what's found at that point?

THOMPSON: We didn't incorporate the effects of unionization, but your point is very valid, and I would suspect that the bulk of that wage premium, if you will, earned by lower-skilled workers in the public sector is the result of their being unionized.

JAY: Well, then, let's ask them a more underlying question. So let's say the public sector's paid a little more. Let's say unionized workers are paid a little more. What's wrong with that? What is wrong? This is being played out in the public discourse as this�there's something wrong with higher wages.

THOMPSON: That's exactly right. The argument is, you know, lazy workers, they're stealing from us, basically, is what it boils down to. But the reality is that there's not necessarily a problem with higher pay in the public sector, for a number of reasons. The public sector not only provides basic services in local communities�paving roads, policing services, fire, schools, etc.�but it also plays an important role in upholding basic public standards. And to the extent that wages everywhere for low-skilled workers are too low, the public sector can play an important role in boosting them. So if low-skilled workers in the public sector are getting more, that can have a spillover effect and bring up the wages in the private sector, because private sector employers are having to compete for workers with the public sector, and that can benefit communities�although low-wage employers in the private sector aren't going to like it. They want to be able to pay lower wages. And if a public sector prevents them from doing that, then they're going to be upset about it. That's for sure.

JAY: So with the elections coming and likelihood of the Republicans doing very well, if not controlling the House, and who knows, maybe the Senate, we're very unlikely to see more stimulus money coming from the federal government to state and local levels. And if that's the case, what will be the repercussion both on employment and wages if in fact the state as an employer helps to keep other wages up?

THOMPSON: I think it's bad news for state economies. It's bad news for state and local service providers. The stimulus monies, both through /ErV/ and the temporary jobs bill last year, provided an important backstop. And that money is going away. And it's like you suggested: it's not going to be refilled by the next Congress. We can expect there to be job losses because of it. We're already seeing job losses accumulating in the public sector. Here in New England, comparing the most recent figures that we have to figures from a year ago, the public sector workforce is down across the region anywhere from 3.5 percent in Connecticut to 1.7 percent in New Hampshire. So we're seeing job losses at a time when we're trying to pull out of the recession. And at a time when the private sector's growing, the public sector is going in the other direction. It's going in the wrong direction. And that's going to get worse in the coming months and in the coming year because the federal stimulus money is going away.

JAY: So now all these workers in the private sector can compete with a whole new gang of workers who are coming from the public service now looking for private sector jobs.

THOMPSON: That's right. So the impact on wages will get that much worse. We've already got a large pool of unemployed people. But to the extent that the public sector has held strong, to some extent there will be a larger pool of workers in the next period as well.

JAY: A brilliant economic strategy. So more people unemployed, being paid less wages, and somehow that's going to solve the demand problem, which certainly was one of the root causes of the crisis. I don't get it. Thanks very much for joining us, Jeff.

THOMPSON: Thanks for having me.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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