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Are public sector workers overcompensated?

What impact does a higher standard of living for unionized public sector workers have on the economy?Public versus Private Sector Workers: A Look at Earnings, Compensation, and Economics Unions and EarningsOn average, union workers earn more than their nonunion counterparts.

2010 Weekly & Annual Union/Nonunion EarningsBureau of Labor StatisticsOccupationUnionNonunionDifferentialAll workers$917/$45,850$717/$35,8501.28Production$801/$40,050$569/$28,4501.41Education$1,008/$50,400$811/$40,5501.24Health Care$1,098/$54,900$967/$48,3501.14Management$1,187/$59,350$1,231/$61,5500.96* Annual earnings estimated by multiplying weekly earnings by 50.Public versus Private Sector WorkersThe public sector is much more likely to be unionized compared to the private sector (36.2 v. 6.9%). Does that mean that public sector workers earn more?In 2010, the BLS reports that the median weekly earnings for a private sector worker was $864. For the public sector, it was $961 (a ratio of 1.11). Chris Edwards, from the Cato Institute, reports even higher differentials. Using 2009 BLS state and local data, Edwards reports a 1.34 differential for salaries and a 1.45 differential for total compensation.

Public versus Private Sector WorkersBUT:Jeffrey Keefe, Rutgers University & Economic Policy Institute (2010): Controlling for employer size, education level, experience, and work schedule, private employees make 11% MORE in wages and 2% MORE in total compensation than public workers.

Keefes Findings on Total CompensationData Source: 2009 IPUMS Current Population SurveyPublicPrivateCollege Degree$56,641$89,041Lawyers$79,330$175,141High School Degree$44,000$44,000Less than High School$41,000$27,719Public versus Private Sector WorkersBUT:Peter Orszag, Congressional Budget Office (2007): Using 2005 data from the Office of Personnel Management, Orszag concludes that it is all about the training and experience.Public Sector Workers generally have more education. About of all federal workers have a college degree; 1/3 of the private sector does. 82% of the pay differential between federal and private sector workers is explained by the difference in education alone.Public Sector workers have more training within occupations. Nurses working for the federal government are twice as likely to have a college degree as those employed in the private sector( 24 v. 11%). Federal database administrators are twice as likely to a post-baccalaureate degree compared to their private sector counterparts (31 v. 16%).Public Sector workers are older and therefore have more experience (45 v. 40 years of age).Are Ohio Public Sector Workers Overcompensated? Keefe on Ohio (2011):Ohio public sector workers earn 5.9% LESS than their private sector counterparts in salary and 3.3% LESS in total compensation.Ohio state and local governments and school districts pay college-educated workers on average 25% less than do private employers.Ohio public sector workers are more educated (49 versus 26% with a college degree) and more experienced than their private sector counterparts (23.2 versus 21.7 years).

Are Public Sector Workers Overcompensated? 2009 Employee Compensation Costs by the BLS:

State & LocalPrivate 500+ employersTotal Compensation$40.32$40.01Wages (%)65.5%66.4%Benefits (%) of which: health retirement34.4%

11.6%8.1%33.6%

8.7%5.1%Social Security & Medicare4.6%5.7%What about economic well-being?GDP per capitaMedian Family IncomePoverty RatesGini CoefficientsRight-To-Work StatesSource: National Right-To-Work Legal Defense Foundation

Real GDP per capita growth rates2006-2009GDP is measured as the expenditures of households on goods and services plus business investment, government expenditures, and net exports. GDI is measured as the factor incomes earned (labor and capital income) and other costs incurred in production.

Personal Income: Percent Change2010II-2010III

Personal income can be defined as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors income, dividends, interest, and rent, and personal current transfer receipts, less contributions for government social insurance.

Median Family IncomeSource: 2005-09 American Community Survey

Poverty Rates 2009Source: US Census Bureau

2009 Gini CoefficientData source: US Census

Final ThoughtsShould we include future values for pension benefits in the calculations?Defined benefit versus defined contribution plans.Implied contract.What are the long-term effects of reducing public employee pay and compensation?Social responsibility attitudes and public sector work.Incentives matter!!!