Office of Planning and Budgeting

Public Sector Workers Paid Less Than Private Sector Counterparts

As the economic crisis has continued to batter state budgets across the nation, the compensation of public employees has become a hot button issue for citizens, politicians, and the media. However, the Economic Policy Institute has released a statistical analysis that shows that, after controlling for education, experience, hours worked, organizational size and personal characteristics, state and local government employees are compensated 3.75 percent less than their private sector counterparts (1.8% less for local government employees and 7.6% less for state employees).

The September 2010 EPI Briefing Paper Debunking the Myth of the Overcompensated Public Employee, by Dr. Jeffrey Keefe, uses federal compensation data to analyze differences in total compensation packages for comparable public and private sector employees. Note that the analysis did not include federal workers. Among Keefe’s findings:

  • College-educated public employees cost more than 20% less than similarly educated private sector  employees.
  • Less educated public employees (high school diploma or less) are paid slightly more than private sector employees.
  • Public employees receive a higher portion of their compensation in the form of benefits.
  • After controlling for education, experience, and personal characteristics, an overall compensation differential of 6% is narrowed to 3.7% after accounting for the fact that private sector employees work more hours.

As the public and elected officials debate potential state budget cuts, it is important to contextualize issues such as the pay, benefits, and job security of our public workforce within available data, and to ensure that we are always comparing apples to apples by controlling for the different mix of jobs in both the public and private sector. Keefe’s analysis is a valuable contribution to the discussion.


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