Three (3!) New Studies on How Public Sector Workers Are Overpaid


In today's Wall Street Journal, a heap of new data showing that public sector workers are overpaid, courtesy of the authors of a study that finds public school teachers are overcompensated, relative to their private sector peers.

The Bureau of Economic Analysis has announced that, beginning in 2013, the National Income and Product Accounts of the United States will calculate defined-benefit pension liabilities—and the income flowing to employees in those plans—on an accrual basis that reflects the value of benefits promised, regardless of the contributions made by employers today.

The bureau's reasoning is a 2009 research paper stating that "if the assets of a defined benefit plan are insufficient to pay promised benefits, the plan sponsor must cover the shortfall. This obligation represents an additional source of pension wealth for participants in an underfunded plan." At current interest rates, this adjustment would roughly double reported compensation paid through public pensions.

The Congressional Budget Office endorsed a similar approach last month in a new report on federal employee compensation. The report—which congressional Democrats reportedly hoped would debunk our 2011 paper on federal pay—found that the federal retirement package of pensions plus retiree health care was 3.5 times more generous than private-sector plans, contributing to a 16% average federal compensation premium.

Even more recently, an analysis by two Bureau of Labor Statistics economists, published in the winter 2012 Journal of Economic Perspectives, concluded that the salary and current benefits of state and local government employees nationwide are 10% and 21% higher, respectively, than private-sector employees doing similar work. This study didn't even factor in the market value of public-pension benefits, nor did it include the value of retiree health coverage.

Reason's own Tim Cavanaugh hit many similar notes in his May column, "Bad Apples," released online earlier today: 

"So why has the idea gained currency that public workers are overpaid?" demanded journalist Alan Farnham in a February 2011 article at ABC News. Farnham likewise called for an "apples to apples" comparison and chastised hard-number hawks who rely on data from a sketchy outfit called the U.S. Bureau of Labor Statistics (BLS). 

You get no points for guessing that the BLS numbers unambiguously show public-sector workers making more than equivalent private-sector workers. Total employer compensation cost in 2011 averaged $40.76 per hour for state and local workers; for private industry workers it was $28.24 per hour. The disparities are also big for federal workers. A janitor working for Uncle Sam makes $30,110 a year, while his or her private-sector peer makes $24,188. Federal graphic designers, "recreation workers," and even P.R. flacks all make between 50 percent and 100 percent more than their private-sector colleagues. ABC's sources faulted those stats for failing to "take into account workers' level of education." 

Get lots more coverage of the war over public sector pensions and benefits

Bonus: The March Reason-Rupe poll found that 67 percent of Americans think government workers receive better health care benefits.

Bonus bonus: 3 Reasons Public Sector Workers Are Killing the Economy: