A report out today from two University of Wisconsin-Milwaukee professors puts the lie to claims from local conservatives that state employees represent the "new wealth class." In fact, the new research shows that state workers here in Illinois make considerably less than their private sector counterparts.
Last month, we ridiculed Illinois Policy Insitute (IP) director John Tillman's recurring claim that Illinois state worker pay is way out of line with private sector compensation. To describe his message as hyperbolic would be an understatement. "We have a new class warfare underway," he said at a March 16 press conference, "where the public employees are the new wealth class with higher salaries, better benefits, and lavish pensions." For old time's sake, here's the clip:
To justify his group's proposed $900 million reduction in state employees' wages and benefits, Tillman has repeatedly asserted that IPI's research shows public employees making "15.7 more than the average private sector employee in Illinois." Most recently, he cited this figure in an email to Tribune columnist Eric Zorn.
So why the ridicule on our part?
Because it's deeply misleading to compare overall salary data between the public and private sectors when the latter contains far more low-wage positions (such as waiters and retail clerks). To reinforce this point, we noted how an apples-to-apples comparison of workers with similar occupations in the state of Washington had found that the median pay in 2008 was generally higher for those in the private sector. We also expressed the hope that some similar research would surface here in Illinois.
Well ... ask and ye shall receive.
Today, University of Wisconsin-Milwaukee professors Keith Bender and John Heywood released a report on behalf of the National Institute on Retirement Security titled "Out of Balance?: Comparing Public and Private Sector Compensation Over 20 Years."
Rather than simply lumping all the private and public employee salaries together and comparing the averages (as IPI apparently did), Bender and Heywood employed a much more sophisticated method, which they called the "people" approach:
The critical point to take from the “people” approach to estimating earnings differences is that the characteristics of state and local government employees differ dramatically from those of the private sector. State and local governments consist disproportionately of occupations that demand more skills and earn higher wages. As a consequence, the typical state or local government employee has substantially more education, training, and experience. Adjusting for these differences is required to compare apples to apples. Indeed, adjusting for these differences typically explains most of the observed earnings advantage of the typical state and local worker.
So after making such adjustments, what did they find? Here in Illinois, they disovered that the differentials between public and private workers are "strongly negative," with local and state employees often making 15 percent less than their private sector counterparts. The graph below lays out the annual differentials for each of the past 20 years and shows that, while state workers have occassionally come close to parity with the public sector, they've increasingly lagged behind over the last decade:
Nationwide, the economists found that "state workers earn[ed] 11 percent less and local workers 12 percent less than private sector workers" between 2000 and 2008. Here in Illinois, state and local employees did even worse over the same period, with differentials of 12.5 percent and 13.3 percent, respectively.
Bender and Haywood also compared "total compensation" (which includes benefit and insurance data) and found that while "the state and local sector receive[s] a slightly larger share of their compensation in benefits ... it is not dramatically larger."
The conclusion of their report is instructive:
There are several implications of our exercise. First, the compensation of state and local workers is not excessive. Second, this remains true when including benefits. Third, the pattern of results over the last 20 years has generally been one of declining relative earnings of state and local workers compared to similar private sector workers. Fourth, this remains true in most of the states that we examined, although some heterogeneity exists. These implications lead to the policy prescription that now is not the time to advocate for large-scale rollbacks in the compensation of state and local workers. Although the current recession calls for equal sacrifice, the long-term pattern indicates that state and local workers are not, on average, overcompensated. If the goal is to compensate state and local sector employees in a manner comparable to those in the private sector, the data do not call for reductions in state and local wages. If anything, they call for increases.
In light of this data, IPI's effort to demonize public employees -- and to balance the state budget on their backs -- should be seen as what it is: truly shameful.