Public Employee Compensation

A recently released study sponsored by U.C. Berkeley’s “Institute for Research on Labor and Employment,” authored by Sylvia Allegretto and Jeffrey Keefe, entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated,” contains its conclusion in its title, but whether or not this study is presenting the “truth” or not is worthy of further discussion.

According to this study, “the wages received by California public employees are about 7% lower, on average, than wages received by comparable private sector workers; however, public employees do receive more generous benefits. An apples to apples comparison, or one that controls for education, experience, and other factors that may influence pay, reveals no significant difference in the level of employee compensation costs…”

While the study goes on to explain the variables they evaluate in order to arrive at an “apples to apples” comparison, it never actually estimates the actual amount of wage disparity between the average compensation packages for California’s public employees compared to California’s private sector employees, so here goes:

Using California’s Employment Development Department’s recent report “Labor Market Trends,” (ref. figure 1) it is evident there are 2.4 million Federal, State and Local employees in California, 12.2 million full-time private sector employees who work for an employer, and another 1.4 million “self-employed” private sector workers. Worker compensation as reported by the Bureau of Labor Statistics don’t include estimates for California’s 1.4 million self-employed workers, nor does the U.C. Berkeley study. If these estimates were included, they would almost certainly skew average private sector compensation downwards, since according to California’s Employment Development Dept., self-employment does not include anyone working for a Corporation or LLC, even their own, meaning that more highly-compensated professionals fall within the BLS statistics for California’s 12.2 million private sector employees, whereas the remaining self-employed include part-time workers, independent contractors; in aggregate, a marginally compensated multitude who have to cover 100% of their benefits  – a 2x payment for social security, and zero paid time off, or free insurance of any kind, or automatic pay for sick time and retirement.

Returning to the 14.6 million people in California who either work for the government or are employed by private sector firms, according to the Bureau of Labor Statistics report “May 2009 State Occupational Employment and Wage Estimates California,” their average annual compensation (not including employer funded benefits) in 2009 was $49,550. In order to extract from that average the compensation for the 2.4 million government workers in California, one may refer to Census Bureau data for 2009 as follows – for 394,000 state workers ref. State Government Employment Data, and for 1,451,619 local government workers ref. Local Government Employment Data. If you combine and average the compensation data for these two groups, you will arrive at an annual average pay – before any employer funded benefits – of $65,000 per year.

Making just one assumption, that California’s 500,000 federal workers not included in these statistics are earning the same average salary as the state and local workers, it is possible to subtract the figures for government workers from the pool of 14.6 million workers, who, according to the BLS earn an average of $49,500 per year, in order to calculate an average private sector (not including self-employed) compensation of $46,528 per year. This means that the Berkeley study has “normalized” for education, experience, and “other factors” to turn a 40% disparity between public and private sector compensation into a 7% disparity.

Before accepting the conclusion of this study, there are several assumptions it makes, both factual and subjective, that should be questioned; starting with this: “The average age of a typical worker in state and local government is 44 compared to 40 in the private sector.” The benefit of coming up with a “fact” like this, of course, is because by combining this fact with the assumption that compensation increases with seniority, the researchers are able to normalize downwards the average compensation of public employees significantly. For example, if one assumes an average career of 30 years, and that a worker’s inflation-adjusted salary will double between when their career begins and when they retire, than one might reasonably conclude a “normalized” compensation average for the public sector worker must be adjusted downwards by 13.3% in order to represent an “apples-to-apples” comparison with the younger private sector workers. Here again, it is serendipitous for the Berkeley study to exclude self-employed individuals, since according to California’s EDD, for workers over forty years of age, fully 50% of the civilian workforce is self-employed (ref. EDD’s California’s Self-Employed Workforce,” figure 6).

Another normalizing factor used by the researchers is gender, wherein they claim 55% of the state and local government workers are women, compared with 40% of the private sector. This is partially skewed, again, by the fact that 60% of self-employed people are men, but even adjusting for that, this fact, if accurate, represents another huge opportunity for the researchers to “normalize” compensation statistics in favor of reducing the disparity between private and public sector pay. Without having access to the work-papers used by the researchers, one can only speculate, but here’s the logic that could have been used: If women make 30% less than what men make for comparable work requiring comparable credentials, and if women represent 55% of the government workforce compared to 40% of the private sector workforce, this means an “apples-to-apples” comparison would require adjusting the public sector compensation upwards by  17% (55% x 30%) vs. an upwards adjustment of only 12% (40% x 30%) for the private sector workforce. Voila, another 5% of pay disparity is vaporized. The problem here is whether or not the “30%” pay differential rests on valid assumptions. When one normalizes for technical degrees vs. non-technical degrees, and the actual supply and demand parameters for jobs that might be deemed “comparable,” as well as for the significant percentage of women who opt out of full-time work in favor of being moms, much of this gender disparity may disappear. Whether or not there remains a gender bias in employee compensation is certainly open to debate, but the researchers should be transparent regarding how significant this factor was in their calculations.

The other major normalizing factor employed by the researchers is education, because the researchers have determined that 35% of the private sector workforce have earned at least a bachelors degree, compared with 55% of the public sector workforce. The researchers also claim the “return to education,” wherein people who have higher educational attainment should earn more, is skewed; that is, they claim private industry rewards education more than the public sector. What the study ignores here, however, is the fact that educational attainment yields qualitative dividends – what degrees are being compared? Is a sociology degree from Sonoma State the equivalent of a computer science degree from Stanford? Is it appropriate to pay more to employees with advanced degrees even if the job they do doesn’t require that level of education? The study doesn’t address this.

In any event, by excluding 1.4 million self-employed and part-time workers, and “normalizing” for seniority, gender and education, the Berkeley study has concluded that an average public sector salary in California is not 40% more than an average private sector salary – and without any normalizing adjustments, 40% higher wages for public sector vs. private sector workers appears to be a conservative estimate – but instead, that public sector wages are 7% less than private sector wages.

When turning to comparing benefits for public employees vs. private sector workers, it is important to understand that salary is the base on which the most significant benefits are calculated. In particular, the largest benefit category in the public sector is retirement pensions, which are calculated based on final salary earned. This means that even if public employee pension benefits were calculated in the same parsimonious manner as social security, they would apply to an average compensation base that is 40% larger for public employees. Moreover, public sector pensions are linear, meaning the benefit increases exactly proportionally to the amount of base salary without limit, whereas social security benefits increase at progressively lower rates, meaning that the more one makes, the lower percentage of their final salary will actually be realized in a social security benefit. These sound like nuances, but have enormous financial consequences. For more on this ref. “Pensions: Giant 401K Plans,” “Sustainable Retirement Finance,” and additional links therein.

Before independently estimating the disparity between public employee and private sector employee benefits, here is the Berkeley study’s specific conclusion: “public employers contribute on average 35.7% of employee compensation expenses to benefits, whereas private employers devote 30% of compensation to benefits.

By far the biggest single cost for employee benefits in both the public and private sector is the cost of retirement security. The calculation in the private sector is relatively straightforward – the employer withholds 6.2% for social security and 1.45% for medicare from employee paychecks, and contributes an equivalent amount themselves as a benefit – 7.65%. Some private sector employers will match a 401K contribution up to 6.0%, but the percentage of private sector employers who do this, combined with the number of private sector employees who take full advantage of this, is probably under 25%, which means the average overall retirement benefit paid by private sector employers is probably 10% (or less) of total wages.

For the public sector in California, the cost of retirement security borne by the employer is something else entirely. The typical formula for non-safety employees (about 85% of the public sector workforce) is to multiply the number of years they work by 2.0%, and apply the resulting percentage to their earnings in their final year of active employment. For example, if a non-safety employee works for 30 years, then 60% of their final salary will be the amount of their retirement pension. For safety employees, the typical formula is the same, but based on a 3.0% per year accrual. In the public sector, unlike with social security, the money contributed each year to fund the future retirement benefit is invested by a pension fund, which means the value of this benefit – and the funding required each year to ensure the pension fund remains solvent – must be calculated based on the expected investment returns of the pension fund. This is a matter of great controversy.

In the post “Sustainable Pension Fund Returns,” a best-case and realistic-case set of scenarios are offered:

(1) At a real rate of return of 4.75% per year, a worker would need to set aside an additional 21% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 60% of their paycheck.

(2) At a real rate of return of 4.75% per year, a worker would need to set aside an additional 32% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 90% of their paycheck.

(3) At a real rate of return of 3.00% per year, a worker would need to set aside an additional 35% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 60% of their paycheck.

(4) At a real rate of return of 3.00% per year, a worker would need to set aside an additional 52% of their salary each year for 30 years, in order to enjoy a pension benefit during a 30 year retirement equivalent to 90% of their paycheck.

For this independent estimate of the value of public sector employee pension benefits, using an assumption that 15% of public employees receive the enhanced “safety” pension, and assuming that the real rate of pension fund returns going forward will be 3.0% per year (still quite optimistic), it is necessary to contribute an amount equivalent to 38% of the average public employee’s pay in order to keep their pension solvent. Since, on average, public employees contribute about 5% of this amount in the form of withholding, an additional 33% has to be contributed by the employer. Many public employees receive supplemental retirement health insurance, for which few of them contribute anything at all in the form of withholding. It is certainly accurate to value this additional benefit as at least twice the amount of medicare, which adds another 3.0% per year.

Adding this all up, using conservative assumptions, the employer contribution to retirement security in the private sector is at most 10% of average salary, whereas in the public sector the employer contribution is at least 36% of average salary.

When assessing the value of current benefits granted public employees, most reviews of public sector benefit schedules suggest the standard package is a comprehensive set of benefits – for example, if one refers to the State of California’s Dept. of Personnel Administration, some of the current benefits include health insurance, dental benefits, a vision program, long-term care insurance, and long-term disability insurance. While these benefits are partially funded through employee withholding, the amounts withheld almost never exceed 50% of the premium, even for dependent coverage. To suggest that current benefits for public employees are, on average, less generous than the average current benefit for private sector employees strains credulity. What about the millions of part-time workers and self-employed people, who have to pay 100% of whatever health insurance they can afford – at premium rates that aren’t discounted and guaranteed by the insurance companies the way they are for the huge state employee bargaining units? What about all the small companies out there, employing at least 50% of full-time private sector workers, who can barely afford to offer basic health insurance, much less dental, vision, long-term care and long-term disability? It would be conservative indeed to simply assume the cost of current health insurance and other current benefits paid for by the employer is the same for both public and private sector workers, at approximately 5.0% of payroll.

The other significant factor to assess when estimating the value of public sector benefits is the amount of paid time off enjoyed by public sector employees vs. private sector employees. On this matter the Berkeley study makes a claim that they simply must substantiate; they state: “public employees receive considerably less supplemental pay and vacation time.

Perhaps to rebut this preposterous claim one must revert to anecdotes, but here at least are some quantitative considerations: there are 723,000 teachers in California who work for the government either in primary and secondary school or in higher education. Every one of these instructors and administrators works about 180 days per year, which when one considers there are 260 weekdays in a year (52 weeks x five days per week), indicates that teachers in California get 16 weeks of paid days off each year. What about college professors who only teach one class per week, yet enjoy total compensation packages worth $138K per year (ref. The Real Reason for College Tuition Increases). If you review compensation studies for safety employees in the city of Costa Mesa (ref. The Price of Public Safety), or firefighters in Sacramento (ref. California Firefighter Compensation), you can see, for example, that before overtime, full-time service for a veteran firefighter in Sacramento requires them to work, on average, two 24 hour shifts per week. Does the Berkeley study normalize for any of this? Compare vacation time in any public entity in California against private sector norms – the average vacation days awarded in the public sector allocate employees after about 10-15 years of service 20 days of vacation per year, and by the end of their careers, up to 30 days of vacation per year (ref. CA Dept. of Personnel Administration, Leave Benefits). This amount of paid vacation is rarely offered to employees in the private sector – with many small companies offering virtually no vacation to their employees, a generous assumption might be 10 days, half as much as public sector vacation benefits. With respect to paid holidays, the typical public sector benefit is at least 12 days, while small private companies often only award six (Christmas, New Year, Memorial Day, July 4th, Labor Day and Thanksgiving), if that. In addition to vacation and holidays, many local governments and various state units also offer paid “personal days,” something nearly unheard of in the private sector. It is also common for sick time to be accrued without limit in the public sector, also something nearly unheard of in the private sector. And self-employed workers, of course, get nothing.

In order to continue to make conservative assumptions, however, one may estimate the average number of paid days off in the private sector to be 20 per year (probably high) and the average number of paid days off in the public sector to be 30 per year (probably low). How does this all add up?

The average public sector worker makes $65,000 per year, with the employer contributing an additional 21,450 for their retirement pension, $1,950 for their retirement health insurance, $3,250 for their current health insurance and other benefits, and they earn vacation worth an additional $10,575 – making their average total compensation $102,225 per year. It is interesting to note that the benefits as a percent of total compensation in this analysis agree with the Berkeley study – 36.4% vs. 35.7%, because the Berkeley study has almost certainly understated the value of the required pension fund contribution, which is another reason why the assumptions made here to estimate the value of all the other public employee non-pension benefits are probably conservative.

The average private sector worker makes $46,500 per year, with the employer contributing an additional $4,650 for their social security, medicare, and 401K, $2,325 for their current health insurance and other benefits, and they earn vacation worth an additional $4,113 – making their average total compensation $57,558 per year. The average private sector worker’s benefits as a percent of total compensation in this analysis is 19%, not 30% as claimed in the Berkeley study. And again, the Berkeley study failed to consider any of California’s 1.4 million self-employed and part-time workers in the pool they evaluated .

It is left to the reader to decide which numbers are more accurate, the numbers put forward here, or the numbers put forward by the Berkeley research team. Similarly, it is left to the reader – and the voter – to decide whether or not the services provided by California’s state and local governments, and the skills required to render them, entitle California’s public servants to earn, on average, $102K per year, compared to average annual earnings of $57K by those of us whose taxes sustain them.

Local Government Public Employment Data – revised Dec. 2009

47 comments to Public Employee Compensation

  • Tough Love

    UC Berkeley’s senior research staff should discredit this study for the trash that it is. The “researcher” authors should be fired for producing such biased, incomplete, misleading trash.

  • Fake SkippingDog

    The is not a study, is is a public employee union propaganda hit piece that is not worth the paper it is printed on.

  • SkippingDog

    It’s actually a well done study, although I agree it should have included federal employees in the calculations where possible. The fact that tough love and Rex don’t like it doesn’t make the research conclusions inaccurate, it just means they’re different than the haters wanted.

  • Editor

    Skipping Dog – what benefit is there is stating “it just means they’re different than the haters wanted.” I don’t agree with the conclusions of the study, and I’ve invested a considerable amount of time in this analysis in an attempt to explain why I don’t agree with the conclusions of the study. Am I a “hater?” Unlike extreme libertarians – and, of course, whoever those “haters” are – I believe in government programs and have no grudge against government workers. My beef is with the unions who, in my opinion, have infiltrated government through their memberships within government workforces, and I think these unions exercise far too much influence on our politicians. I think that government salaries, in general, and especially in California, are too high. I think my “apples-to-apples” comparison shows this, and I think the “normalizing” assumptions made by the Berkeley researchers were over-stated. Do you have any specific criticism you would like to level at the logic and assumptions I’ve made, or are you just interested in name calling? And by the way, don’t think I spare people who agree with me if their comments get over-zealous, because that would be incorrect. We value constructive input here.

  • Tough Love

    Ed,

    SkippingDog is riding this gravy train and is “doing his part” to (at least) slow down it’s inevitable derailment.

    Why would you expect anything different ?

    Personally, I have ALWAYS said that Public and Private Sector workers making comparable pay should get essentually equal pensions & benefits. Obviously that not acceptable to SkippingDog and his ilk.

  • SkippingDog

    Actually, Ed, I don’t think you’re one of the haters. I do think they repeatedly cherry-pick the data you present to suit their needs, and have seldom read anything by you that would contradict such uses.

    I think you and the Canadian guy try to present some thoughtful information, and only ask that your analysis sometimes include the possibility that the pension systems are not merely Ponzi schemes or unwarranted largesse for those who’ve earned them over a large number of years.

  • SkippingDog

    One other thought Ed. Perhaps you should treat your evaluation of teacher compensation differently than that of other government employees and officials. They have an unusual work calendar, which doesn’t really address some of the historical differences in holiday and vacation use.

  • Taxpayer

    Ed,
    Analysis well thought out.
    What is the average annual pension (or 401K) today?
    Let’s say it’s $50,000/yr.
    Short term: Without renegotiating any contracts, we need a ballot measure that would tax all public pensions at 90% of the amount over (cumulative) $50,000/yr paid.
    Pay it out and get it right back!
    Long Term: Fix this mess with a defined plan for everyone.

  • boprn

    I got an opinion on this study….imagine.

    But first, let me say that the last few ‘studies’ that have come out got me curious. I have debated at times with ‘Tough Love’, Ed Ring, and others regarding pay and pensions of government employees over the last couple of years. All the while we were arguing different topics – something I didn’t realize. I was arguing the topic of salaried employees at the state level, and my opponents were (I believe) referring to county/city employees. This brings me back to the last few ‘studies’. Like I said, they got me curious.

    The bloated salaries (for the most part) that Ed Ring, Tough Love, so on, speak of are at the county & city level. I got into the data bases of several counties and was astonished at the pay and pension that these people have given themselves. In Sacramento County there are 100s upon 100s of individuals making between 100k to almost 400k per year. Nearly all these people have pensions that are meant for police/fire. Pensions that are either @50 or @55. When I say 100s upon 100s in Sac county – that’s just it, that is only the county level. There are a number of cities in Sac county of course, and those add even more.

    I ran the rough numbers on what the county/city level has done in regards to future pension payouts. It is obvious that nearly all these counties/cities will be in enormous financial trouble in the future. From an actuarial standpoint the system will collapse at the county/city level. Of course some municipalities will be able to meet CalPers obligations, but most will be hard pressed to. Taxes will have to jump – property taxes, or local ‘add-on’ sales taxes to meet these pension obligations.

    So, indeed what Ed Ring & others say is true. Those of us who work for the state and discuss these things on these forums are talking about apples, while they are talking about oranges. I would encourage all state level employees to learn about what is going on at the county/city level. What is going on could drag us all down.

    It should be noted for Ed, TL & others that the pension spiking, extreme pay, and other shenanigans that go on in your local municipality do not occur at the state level. This has me wondering why the laws that state level employees must work within are not applicable to lower levels of government…?

    One last thing…there are some groups that are grossly overpaid at the state level: CHP, MDs who work CDC, nurse consultants who work for consumer affairs, but at least 95% of those working at state level (that I know of) are actually working for less (varies depending on field) than they would in the private sector…and a LOT less than if they would go to work for the county. As stated earlier, I was astonished at what is going on at the county/city level.

    Here is a link to county/city pay…..
    http://lgcr.sco.ca.gov/Default.aspx

  • boprn

    Ed,

    A bone to pick with you regarding ROR.

    CalPers uses 8.75% (as I’m sure your aware). Your using 3% & 4.75%. While that may seem like thing thing to do in these times, its just not right. The market has been down the last 10 years no doubt, and that makes a lot of non-thinkers (sheeple if you will) say ‘Ed has to be right’. However, if we were to take various market downturns throughout history you would have sounded right at those times also…but wrong later. The true market return over very long time spans (and that’s what CalPers uses) is quite a bit more than it even uses – its greater than 8.75%.

    When I do retirement workups for friends, I use an ultra safe rate of 3.5%. That is for an individual plan that cannot sustain the down markets that something the size of CalPers can (and does not have others paying into it after the retiree has left active work).

    A good discussion on safe withdraw rates can be seen at: http://www.retireearlyhomepage.com/restud1.html

    These rates are factored in for bad times ranging from the great depression, to great times like the dot com boom.

  • Fake SkippingDog

    One other thought Ed. Perhaps you should treat your evaluation of teacher compensation differently than that of other government employees and officials. They have an unusual work calendar,
    ==================
    Yes, teachers do have a “an unusual work calendar”, they only work 37 weeks per year, they only work 36 hours per week and the AVERAGE comp for teachers in CA is $68K in slary and $40K in benefits (soem comp $150K for those 37 weeks), for a total comp package of $108K for a part time job, or $81 an hour with bullet proof job security where incompetence runs rampant.

    And you wonder why gov is destroying the state??????

  • Fake SkippingDog

    One last thing…there are some groups that are grossly overpaid at the state level: CHP, MDs who work CDC, nurse consultants who work for consumer affairs, but at least 95% of those working at state level (that I know of) are actually working for less (varies depending on field) than they would in the private sector
    =====================
    95% would make less???

    Please.

    The LOWEST PAID UC employee in this state comps (salary+benefits) MORE ($40K) than the AVERAGE private sector employee ($38K) in this state. I am sure the same is true of all state employees, not just UC.

    Your cliam is so off base it is from another planet.

  • Fake SkippingDog

    It’s actually a well done study,
    ===========
    it is totally bogus Skippy.

  • Charles

    I was offered employment in 1969 with Santa Fe Railway as an apprentice fireman because of my high test results, an almost unheard of starting point, the same week I was offered a job, because of very high test results, with the Division of Highways (now Caltrans) as an Engineering Aide I for $435 per month. I chose the latter even though it paid less because of more predictable hours and long term security, and I hung in for 40 years.

    I am now retired, not at 3% at 50, rather 2.25% at 59, pretty much the same as was offered when I went to work.

    Of course, I never got bonuses or profit sharing. I enjoyed my work as a contract administrator, (the Resident Engineer) seeing to it that the citizens of California who paid for it had the highways built as spelled out in the specifications and paying no more and no less to the Contractor than the contract specified. I am proud of my work.

    I keep hearing that I was overpaid in various media. If so, why were private consulting firms keeping my phone at work ringing for decades with offers of higher salary?

    I didn’t fall for the bait because there is a downside to everything. Like being laid off. Oh, by the way, I was in fact laid off by Caltrans for more than a year in 1976. So much for absolute job security.

    Now I have benefits that are no longer available in most of the private sector, partly because private employees fell for short term salaries instead of long term benefits. I did not steal that from the private sector, your private employers did.

    I went without more cash at the moment for something real and tangible that was four decades away. What is wrong with that, Ed and Toughlove?

    I didn’t pull any fast ones. In fact it was a very slow one. By the way, State employees cannot “spike” their pensions with overtime or cashed out vacation. It is based on your final salary per month.

  • Fake SkippingDog

    Of course, I never got bonuses or profit sharing.
    ==================

    LOL…same old BS lines…no one in the private sector gets “bonuses” or “profit sharing” either, with the exception of maybe the top 1/10,000 of the top 1% . But please prove me wrong and post up all these companies that you cliam offer these mythical benefits.

    That spin may work at an SEIU BBQ, but not here.
    .
    .
    .
    I did not steal that from the private sector, your private employers did.
    ============
    What?? Steal?? The ONLY ones stealign were the trough feeders, with unearned retroactive pension payouts of millions of dollars that they did not work for nor earn.
    .
    .
    .
    State employees cannot “spike” their pensions with overtime or cashed out vacation. It is based on your final salary per month.
    ===============
    ALL 23 local 1937 PERS systems allows spiking, so much for that whopper.

  • boprn

    Fake SkippingDog

    I’m going to side with the real SkippingDog on this..point by point.

    The people I know in the private sector who aren’t drone retail workers, or other low level employees do get bonuses, profit sharing, and stock options. In fact, even secretaries I know working for tech companies make more than doctors for the state do because of stock options.

    Regarding the private sector stealing. Of course the employers in the private sector are the biggest crooks in the country. The recent meltdown of the markets was a result of bangsters and corporate types stealing from their own employees and the public. To say otherwise is just a joke.

    SkippingDog said STATE employees can’t spike their pensions. You come back with LOCAL PERS spiking their pensions. This gets back to the apples vs oranges thing. SkippingDog is talking about what’s relevant to him (I’m guessing he’s a state employee), and your talking about what’s important to you – the local employees who are spiking. Its two different subjects.

    If you want to get people on your side (and that’s the only way to get things changed) – drop the attitude, do some research, and contribute in a positive manner.

  • Editor

    Boprn: The rates of return I use in the examples are after-inflation. CalPERS official projection currently is 7.75% with an inflation assumption of 3.0%, which means they are actually predicting an after-inflation return of 4.75%, which is what I use for the baseline example. The rate I’m using for the “realistic” example is 3.0%, again, after inflation, which is only lowering the nominal projection CalPERS uses from 7.75% to 6.0%. My primary assumption is that sustainable real rates of return on investments as large as pension funds can’t exceed the rate of global economic growth – which was about 4.0% per year during the debt bubble, and probably will be somewhat lower than that for at least the next ten years as we crawl out from underneath all of this debt. Even if we can quickly eliminate debt and create new asset classes (through innovation creating new productive industries providing products and services we can’t even imagine today), I think it is imprudent for CalPERS or any large pension fund to assume a real rate of return exceeding 3.0% per year.

    As for your investigations regarding government compensation at the local level vs. the state level, I completely agree with you. And as you probably know, about 80% of state and local government spending in California is at the local level – very rough numbers, $100B/year vs. $400B/year. In terms of headcount, as noted in the article, there are about 400,000 state government workers in California, and about 1,400,000 local government workers in California. It is worth noting in this context, by the way, that the hundreds of millions of election spending reportedly being spent by public sector unions probably overlooks much of the spending they’re making at the local level, because these expenditures are by local PACs and aren’t aggregated in order to appear in any “top ten” sort of listing. But in aggregate this spending by local public sector unions is probably greater than what we’re seeing from organizations such as the CTA and SEIU.

  • [...] are we really comparing apples to apples? An interesting and highly critical analysis is posted on CivFi.com, a site “created to answer a need for greater discussion among and between investors [...]

  • boprn

    Ed,

    My bad – I thought you were going on ROR, not ROR-inflation. Where are you getting the 400,000 number from for state employees? I got about 233k using my data.

    Thanks

  • Tough Love

    SkippingDog and Charles …. Please take a look at the link below. Separate from Ed’s comments, it summarizes the flaws in these recent “research” studies. Then may I have your thoughts?

    http://www.american.com/archive/2010/october/government-employees-still-overpaid

    In case you are not inclined to do so, I’ll just point out the major flaws:

    (1) the studies only count ACTUAL current employer pension payments, not the full amount that needs to be paid into the pension Plan so the participants ultimately get what they are promised,

    (2) these studies completely ignor the cost of Retiree medical care … a VERY cosly and universal benefit in the Public Sector, but currently almost unheard of in the Private Sector.

  • Editor

    Boprn: Here is the source for my (rounded up in my comment, stated exactly in the post) figure of 400,000 state workers – the exact reported number is 393,989 full-time workers. This does include “full-time equivalents” whereby the statistic incorporates about 150,000 part-time state workers, counting them as an additional 40,000 full-time state workers:
    http://www2.census.gov/govs/apes/08stca.txt

  • JS Guy

    Thank you for your time and effort in gathering this data and the concise presentation of your findings. I must admit I find the ‘comments’ fascinating as well. As a 50 year old married father of three, who spent 13 months unemployed until July of this year, I’d like to add my two cents addressing those who fall in the ‘Public Sector’ category.

    The current public outrage over your compensation is aimed squarely at your gaming of the system and your complete unwillingness to be managed as a private sector employee when needed.

    By gaming of the system let’s look at some basics. If your retirement benefit were based solely on the last year’s straight pay wage no one would notice but, add in the overtime spike, the uniform spike (public safety employees), the vacation/sick time spike, auto allowance spike and people start to take notice. Then, let’s retire at 54 (does this happen in the private sector?) but, add a disability 6 months prior to retirement so taxes are implemented differently. Then let’s go back to work in the same position as a contract employee for the same salary while collecting your pension and, yes, people start to take notice. There was a time when you could say “only the bad apples do these kinds of things” unfortunately, those things have become SOPs, look at State Assembly members holding quorums in the parking lot of the State Capitol on a Friday before a 3 day weekend so as not to lose their per-diem for the weekend. Over and over and over again, the general public hears stories like these. Sadly it’s not some lower rank and file individual but senior ranking management, dozens of them.

    Regarding the unwillingness to be managed, this will be the decision that brings the gravy train to a complete stop. Keep in mind every furlough day you’re ‘forced to take’ because of your ridiculous refusal to except reasonable compensation discussions, during a time when private sector employees were losing hours, salary and employment altogether, affects the general public. Take my word for it, every time a private sector employee cannot complete a task due to a State, County or City office being closed, they’re not blaming the Governor. Every time a private sector employee has to take a day off from work because their child has a mid-week day off from school or, they can’t take their child to the local library because it’s closed, they’re not thinking,”we should pay that poor public employee more”.

    Feel free to continue on your charted course but keep in mind, the average guy is starting to pay attention, they’re really pissed and they’re coming for you. It is that guy you’re cheating. It is that guy you’re affecting. It is that guy, who for any number of reasons, isn’t as well off today as he was 5 years ago who sees that public sector employees still have all of the perks, per-diems, over-time and the rest.

  • boprn

    Ed,

    On the sheet your using, they are counting education in with the ‘state employees’. Normally we think of them as separate, so that’s where are numbers arn’t connecting.

  • Fake SkippingDog

    The people I know in the private sector who aren’t drone retail workers, or other low level employees do get bonuses, profit sharing, and stock options. In fact, even secretaries I know working for tech companies make more than doctors for the state do because of stock options.

    =====================
    LOL…biggest whopper ever. NO secretary in the private sector gets stock options ay all, much less that pays more than doctors- ANYWHERE……But PLEASE PROVE ME WORNG-Post up a link to one, JUST ONE COMPANY that does!!! I’ll be waiting

    The recent meltdown of the markets was a result of bangsters and corporate types stealing from their own employees and the public. To say otherwise is just a joke
    ====================
    I agree 100%, now tell me what that has to do with comping HS educated gov employees $200K per year.

    If you want to get people on your side (and that’s the only way to get things changed) – drop the attitude,
    ====================
    NEVER!!! My job is to shoot down the lies and whoppers public trough feeders likeyou try to float!!!

    Want some more???…just try to post more of those whoppers :)

  • Fake SkippingDog

    Hey, this is what most people are thinking today about public employes, it is very concise and on point, must read for both private and public sector employees;

    http://citywatchla.com/index.php?option=com_content&task=view&id=4093

  • Tough Love

    Dear “JS Guy”, I read you comment with some interest, but there ARE more fundamental problems with the BASIC STRUCTURE of Public Sector Plans (especially in California) which make them EXTRAORDINARILY costly beyond the “gaming” that you correctly noted.

    Specifically;
    (1) the VERY generous per-year-of-service-factor …e.g, 3% for police, 2.5% for most others. In the very few Traditional Private sector plan that remain, this factor in NEVER more than 1.5% (and usually less for the portion of pay below Social Security’s “covered compensation”).
    (2) retirement at young ages with unreduced benefits…often age 45-50 for police, 55 for others (with sufficient service). Very few Private Sector Plan allow unreduced benefits before age 62.
    (3) Inclusion of automatic post-retirement COLAs in Public Sector Plans …. NEVER found in a Private Sector Plan.

    EACH of the above make a Public Sector Plan 50+% more expensive than its Private Sector counterpart (for employees with the SAME pay, the SAME years of service). Taken together, that 1.5 x 1.5 x 1.5 = 3.375, meaning the Public Sector Plan STARTS OFF 337.5% greater in “value” than the pension of a comparable employee in the Private Sector.

    Add in the “gaming” issues you mentioned, and the VERY costly Retiree heathcare subsidies, and the “value” at retirement of the total package of pension & benefits is often 5+ TIMES that of a comparable Private Sector employee.

    ************
    Hard as it may be, the ONLY solution remains (as I’ve said time & again), a reduction in the pensions for FUTURE years of service for CURRENT (yes CURRENT) employees.

    THIS is the ONLY solution …. short of massive outsourcing … to end the “employment relationship”, and with it future pension growth.

  • boprn

    FSD

    BioMarin of Solano county gives their secretaries stock options. I know someone who works there and she is making 100k+/year (including options).

    There is your ONE company you asked for.

    As for ‘public trough feeders’. Got three degrees, and make a lot less than I can in the private sector. Got in it for the retirement. Made the right choices, and those who made the wrong choices (that would be you) are green with envy.

    You have been a loser, are a loser now, and will be a loser in the future. Enjoy it, I’m quite sure you’re an expert at it.

  • Tough Love

    I always find it amusing that every Public Sector worker thinks THEY could make more in the Private Sector.

    Sure, because they are only looking at the top 5%-10% of earners in their field.

    Example…… we all hear of private Sector attorneys billing at $500/hr. First, these attorneys are generally well established at the most prestigious Law practices in the Big cities and graduated from Harvard, Yale, etc. And even then (unless they are partners) THEY are only getting 1/3-12 of the amount billed, with the balance covering the firms expenses & partner’s profits.

    The “average” attorney make less than $100K/yr … but I’m sure all Public Sector attorneys think they of the caliber that could/should be billing $500/hr.

    Extend this to all the other occupations, and you get the picture.

  • Editor

    Boprn & Tough Love: Having spent years in the Silicon Valley working in start-ups, where the culture is indeed one where stock options are a routine part of compensation packages, I can weigh in on your current debate with some credibility. It is true that stock options are a potential source of terrific financial rewards for private sector employees, but in my opinion this is the exception rather than the rule, for the following reasons: (1) Over 50% of private sector employees work for very large corporations, where stock appreciation is incremental, not exponential, and significant stock options are typically not awarded to employees outside of top management anyway, (2) Most small companies are family-owned or small partnerships in mature industries where there is no possibility of a public stock offering and the chances the company will experience rapid growth in revenue and profits is very low, (3) Even in California, therefore, the percentage of private sector workers who belong to small emerging companies that will offer their employees stock options is probably below 5%, if that, and (4) Most of those small companies who do offer stock options to their employees fail – for every massively successful emerging private company where all of the employees cash in their stock options for rich financial rewards, there are hundreds that go bankrupt or are acquired for pennies on the dollar. In my opinion, while the private sector start-up world offers risk takers and hard workers potentially great financial payoff and is an inspiring and essential part of our economy, the reality is only a handful of people actually reap these rewards. I do not believe the payoff from stock options has a significant impact whatsoever on the average compensation of the average private sector worker.

  • boprn

    Ed,

    When I mention ‘the people I know in the private sector…have stock options’ – in what I do they have stock options. I believe you’re aware that some of us working for the state have taken a job that pays less for the retirement and security that comes along with it. In discussions we have had in the past, I’m almost certain you are aware that is my case. But I’m not alone – there are a LOT of people who bailed from the private sector (due to corruption) to the public sector to secure a more stable income & retirement. They did this for their family, often giving up dreams of working in an environment where they could make a difference. It’s not like we enjoy the constant beating that comes with being a govt employee. Most professional people want to be in a job that makes some kind of significant contribution to society. You lose much of that ability when joining the state. Almost feels like sacrificing a piece of your soul to become a small cog in a machine that is much too large.

    But the beatings must continue until morale improves…..

  • Tough Love

    Dear boprn,

    You seem like an intelligent individual. Perhaps in your particular field, the typical Public sector worker (with similar education and experience) gets lower “cash” pay than his/her Private sector counterpart, justifying the greater pension & retiree healthcare benefits.

    However, from what I’ve read, (primarily from US Gov’t BLS statistics) for the vast majority of occupations, “cash” pay alone is greater in the Public Sector.

    From many years of work, I’m very familiar with pension plan design and funding. In the more generous states (California standing out as one example) the “value at retirement” (present value of expected future cash flows) of the employer (meaning taxpayer) funded share of the retirement package (pension + subsidized retiree heathcare) of the typical Public sector worker is 2-4 times greater than the employer paid-for share of the comparably paid Private sector worker, working for the SAME # of years, and retiring at the SAME age ….. and that multiple rises to 4-6 times for safety workers (due to the even richer pension formula and earlier unreduced retirement age).

    It’s also been shown that the taxpayers’ contributions to these pension plan, together with investment earnings generated therefrom pay for 80-90% of total Plan costs.

    At least for the vast majority of occupation where “cash” pay is higher in the Public sector, do you feel it fair that Civil Servants ALSO get such richer pension mostly paid for by those not getting them? If so, please tell me why.

  • Charles

    The following data pertains to employees (excluding California State Universities) appointed to the State Controller’s Office Employment History Data Base.

    Number of active full-time employees 210,946
    Number of active part-time employees 3,251
    Number of active intermittent employees 25,722
    Number of active indeterminate employees 50
    Total number of active employees 239,969

  • Charles

    ToughLove says
    “The “average” attorney make less than $100K/yr”

    That is why I went into civil engineering instead of law.

    I am retired with forty years of service from 1969 to 2009 for $90k per year plus full paid health insurance for me and my wife and will be eligible for SS of $1700/month in two years. If I die before my wife who is four years younger than I she gets the full retirement and health insurance until she dies. The only changes here was an increase in pension for me of 13.5% due to the 1999 law and a reduction of SS sometime awhile back changing the SS retirement age by one year.

    I got pretty much what I agreed to and notice no one complained about these benefits until about 2007. It was “sustainable” for 38 years.

    I think I made a very good choice.

  • oz

    Ed-

    Please show us any credible study or data(other than your own) that shows that the average public worker receives a comp package of 100k. There are tons of data points out there and none of them show this.

    Other commenters and Ed-

    That being said, I have read some well done studies that attempt to compare actual job to job total comp and yes, for most categories, public sector workers do have a better total comp. The only exceptions that come up in the data are legal and IT fields where private sector workers still have a larger total comp. (Once in a while accounting, too)

    Other than those white collar fields, it does seem that generally public sector workers have a better comp. package.

    HERE is the point, though, that is very hard to normalize for. I suspect most of Ed’s readers are white collar workers and are not as familiar with this, but it comes up very frequently among trade and service workers… There is no way to normalize for poor criminal and driving records. Again, my guess would be that white collar workers would think to minimize the impact of this on one’s earning potential, but I can assure you that it is massive and very common. Poor criminal and driving records impact a much larger portion of the population than you might imagine.

    If you consider the example of a crackerjack plumber with a poor criminal record (it need not be a felony either) or even a poor driving record, it would likely be ok for such a worker to work for a private homebuilder in the building of a subdivision of new homes…
    It would be completely unacceptable from a risk management perspective to have such a person routinely servicing pipes at school buildings, police stations, or courthouses.

    This is a poor example, but I hope it demonstrates an important concept and one which no study I’ve seen can normalize for when comparing private vs. public sector work.

    There is an immense wage earning value in simply keeping one’s nose clean, and public sector jobs are forced to pay that premium. Every chance I get, I try to communicate the importance of staying on the straight and narrow to teens today. The pay gap in the future will not necessarily be public vs. private sector, but clean noses vs. runny.

    Going back to a comment I made earlier, I see reinstating mandatory service as one way to reverse this trend in order to keep youth out of trouble.

    Any one else on board?

  • Editor

    Oz: It is good to have you back, and I think you make a good point about the importance of screening employees who will work in public safety or in jobs where they maintain our energy, water, and transportation infrastructure, etc., to make certain they don’t have substance abuse problems, criminal records, etc., that could make them a danger to the public. I would like to see some of your data on the availability of recruits who can pass this sort of screening, before rendering an opinion as to whether or not you are overstating this as a justification for the premium compensation enjoyed by these workers.

    As for my assertion that the average public sector employee in California makes $102K per year, I’m surprised you would suggest I am not presenting credible data from sources “other than my own.” The post, and the posts it references, all provide plentiful links to authoritative sources of data. For example, in this post, it is quite easy to establish the average before-benefit compensation of the average public sector worker in California using the state’s own payroll data. As stated in the post:

    “In order to extract from that average the compensation for the 2.4 million government workers in California, one may refer to Census Bureau data for 2009 as follows – for 394,000 state workers ref. State Government Employment Data, and for 1,451,619 local government workers ref. Local Government Employment Data. If you combine and average the compensation data for these two groups, you will arrive at an annual average pay – before any employer funded benefits – of $65,000 per year.”

    As for the “total compensation” calculation, which must include the value of all current benefits as well as current-year funding for future retirement benefits, I am confident that my analysis has understated this number, because my conservative assumptions put that ratio at 36.4% of total compensation ($65,000 / (1 – .36.4)) = $102,225), and the Berkeley study actually put the ratio higher, at 37.5%. In reality, the reason our percentages for benefit overhead were about the same was because the Berkeley researchers are probably understating how much current year funding is actually required to fund public employee retirement benefits, and my analysis probably understated the value of all the other benefits – something the Berkeley researchers spent far more time analyzing and had no motivation to overstate. You are welcome to click through on the many links to benefits information that I provide in this post and others; I am confident I used very conservative numbers to estimate the value of the average current benefit package paid to California’s state and local employees. And I would bet pretty much anything that California’s public employee pension funds are going to be forced to raise the retirement pension fund contributions as a percent of pay – very soon – or dramatically lower benefits.

    For these reasons, I am completely comfortable with my calculation that the average government employee in California has a total compensation of at least $102K per year, and I think that number is low, if anything.

  • oz

    Ed-

    Two comments-

    1) Here is one drug-LSD that, if used even once, makes a job candidate completely unemployable for 70-90% of public service jobs (and many private sector jobs too) due to its flashback potential for decades to come.

    The following data shows that roughly 10-12% of the age 18-25 population has used LSD.

    http://www.drugrehab101.com/articles98.html

    Given that half the users may lie about using it (because public employee screening methods vary widely) and get away with lying, that still renders 5% of the youth population essentially completely unfit for public service, effectively locking them into the ranks of the private sector (and likely at the lower paying end of that, too)

    That is just one drug, and a relatively rarely used one at that. I could go on and on (and I will if you like) with the percent of felony convictions, serious misdemeanors, sex crime registrants, DWI’s, reckless driving charges, etc.

    It really is sad, and remember that the majority of the country still does not have a bachelor’s degree and most blue collar workers are actually very dependent on their driving record to keep their wage earning potential high.

    2) Ed- Can you provide a link or header page that shows exactly what your data is?

    Thanks.

  • Editor

    Oz: In the comment I just posted there are links to state and local payroll data that document an average salary – before benefits – of $65,000 per year for California’s state and local government workers. In the post itself you can review several links to source data for the value of their benefits, but as noted in my recent comment, you can reference the Berkeley study and use their data on the value of benefits as a percent of total compensation – they have no reason to overstate that percentage – and their number was the same as mine. And finally, as I note in my most recent comment, that suggests the overhead factor for benefits is probably much higher than what we both came up with, because I believe they understated the cost of current funding for future retirement benefits, and I believe my numbers understated the cost of current benefits. Wade through some of it – click on the links – you may be surprised. I haven’t looked into data for other states, but I wouldn’t be surprised if California pays their government workers more than any other state on average, in some cases far more.

  • Charles

    I wouldn’t be surprised if California government employees don’t get more pay and benefits than in other states. The cost of living is higher higher here.

    And if you compared average private pay here to other states I bet you would find the same difference there. California simply has to pay more.

    As for the average public employee receiving better pay and benefits, I don’t know what is being used as comparable. I would have to see an entire study and what it was based upon to make any kind of opinion.

    State employees in general have more education and training than private employees. They tend to work at more technical and professional level jobs.

    Are professional employees paid more salary and benefits than private? No. I do know that engineers are paid somewhat less, and that attorneys, scientists and IT professionals are hugely underpaid even including benefits.
    Does the “average” government employee (if there is such a thing) make more than private? Maybe. Even if they did by some amount this is a snapshot in time.

    The working world has changed a lot in only the last two years or so, and private employees have taken more of a beating than public, although 3 day a month furloughs have lessened the gap.

    That will change back, although I think a lot more slowly than in past recoveries. It simply takes longer to dig your way out of a deep hole.

    I do think employee unions should be willing to bargain in good faith, and good faith is not saying NO we will make NO sacrifices.
    Most average State workers are willing to do that and so should police, fire and teachers. Government should bargain in good faith, not with a gun pointing at the employees head as has been the case with our current California governor.

    This means Government should listen to other cost saving suggestions on the part of State workers, who are in the best position to know, that is, down in the trenches.

    State managers don’t want to admit many of their policies are counter productive and waste time and money.

    Politicians don’t want to admit their payoffs to private contributors are very expensive and inefficient.

    If California is to move forward in any meaningful way it will take a lot more honesty and transparency and whole lot less rhetoric and spin on all sides (and there are more than two) to even begin.

  • oz

    Ed-

    Your back of the envelope calculations and extrapolations are so full of problems I don’t even know where to start and I’m not doing your homework for you. It’s your site and you can write what you want, but you do us all a disservice by tossing around these numbers. We’ve had this conversation many times before. Please cite ANY reliable study (even one that is slightly biased is okay) that comes to the same conclusion you just did in your last sentence…

    California’s state and local government workers “earn, on average, 102K per year compared
    to average annual earnings of 57k per year by those of us who sustain them.”

    If your numbers are so conservative as you claim, you shouldn’t have any problems finding a study to support your claims.

    Thanks.

  • Editor

    Oz: I provided you source data in my previous comments that PROVE average wages before benefits for state and local government workers in California is $65K per year. Here are those links again:
    http://www2.census.gov/govs/apes/08stca.txt
    http://www2.census.gov/govs/apes/08locca.txt

    Here is the link that documents that these figures do not include benefits:
    http://www.census.gov/govs/apes/definitions.html
    For example – “It excludes employer share of fringe benefits like retirement, Social Security, health and life insurance, lump sum payments, and so forth.”

    Here is the source data:

    State – Full time equivalent employment: 393,989
    Total monthly pay: $2,235,947,296
    Local – Full time equivalent employment: 1,451,619
    Total monthly pay: $7,776,431,618

    And here is the calculation:

    [(2,235,947,296 + 7,776,431,618) / (393,989 + 1,451,619)] x 12 = 65,100

    In my opinion, information using source data from the U.S. Census Bureau, which itself references actual payroll data from state and local government agencies, is pretty good data. Before delving into the calculation of benefits, which is far more subjective, do you accept these numbers – that before including the value of any employer provided benefits, the average state and local government employee in California makes $65,100 per year?

    You may challenge me to produce other studies, and if you wish, I’ll go try to dig some up. But it is likely they will be as biased as the Berkeley study that I’ve worked to debunk. Frankly, I would be surprised if the Berkeley study would have presented numbers that disagree with the ones I’ve come up with, but they didn’t produce an overall average. I think the reason they dealt with percentage disparities between public and private rates of compensation, and the way these disparities disappear when one “normalizes” for education, gender, and seniority, is because they didn’t want to disclose the actual average numbers. They probably realized, correctly, that people would be shocked at just how much the average total compensation actually is for California’s state and local employees.

  • oz

    Ed-

    You are wasting time. Your math is uniformed and irrelevant.

    http://www.cato.org/pubs/journal/cj30n1/cj30n1-5.pdf

    Here is a study by the strongly biased, anti-union, anti-big government Cato Institute… and even the sharpest difference they show is 86k/yr total comp for CA State and Local workers vs. 64k total comp for private sector. (Can you see where your math & extrapolation went wrong? I can.) Believe me, if the Cato institute could even close to factually give 102k as a CA avg. public employee total comp, they would, but even they can’t, and neither should you.

    The actual number- 86k vs. 102k vs. 200k is irrelevant since there should be an apples to apples comparison for job types, skills, education, etc. This has been done and I do value these studies more than Cato’s and Berkeley’s.

    But as you just stated, there is a shock value in certain numbers. And if you’re going to throw those numbers around you should be prepared to justify them. You can not. I don’t know if I’ll get it, but as a reader, I’d request a correction be made to your writings.

    Thanks.

  • Editor

    Oz: Thank you for the reference to the Cato study. There are two reasons I came up with a higher number than they did. First of all, I am confident they used the same average base pay calculation as I did, $65,000, because that number comes from data provided by the payroll departments of state and local government agencies, as I documented in the post, and also in my previous comment. If they didn’t, then they should reexamine their data. Here is my summary of how I came up with benefits for the average public sector worker worth, on average, $37,000 per year, as stated in the post – and you got me, because I did make a mistake when valuing the extra vacation:

    “The average public sector worker makes $65,000 per year, with the employer contributing an additional 21,450 for their retirement pension, $1,950 for their retirement health insurance, $3,250 for their current health insurance and other benefits, and they earn vacation worth an additional $10,575 – making their average total compensation $102,225 per year.”

    There are two assumptions I made that the Cato researcher did not, (1) I put a value on the extra paid days off, and (2) I assessed what I believe it is really going to cost to fund the average pension, instead of what the pension funds are claiming they require based on their overoptimistic projected rates of return. I made a mistake in my vacation calculations because I calculated based on public sector employees getting 30 days MORE vacation per year than private sector employees, when my assumption actually was 30 days public vs. 20 days private. Notwithstanding the fact this was a very conservative assumption, I should have calculated a value for the extra vacation at $3,525 instead of $10,575. As for the pension funding, here is my analysis as stated in the post:

    “For this independent estimate of the value of public sector employee pension benefits, using an assumption that 15% of public employees receive the enhanced “safety” pension, and assuming that the real rate of pension fund returns going forward will be 3.0% per year (still quite optimistic), it is necessary to contribute an amount equivalent to 38% of the average public employee’s pay in order to keep their pension solvent. Since, on average, public employees contribute about 5% of this amount in the form of withholding, an additional 33% has to be contributed by the employer. Many public employees receive supplemental retirement health insurance, for which few of them contribute anything at all in the form of withholding. It is certainly accurate to value this additional benefit as at least twice the amount of medicare, which adds another 3.0% per year.”

    From reviewing the Cato study, they didn’t assess what the current funding cost of retirement health care or defined benefit pensions should actually be, they used what is the current amount being funded into those plans and only commented on the fact these amounts were too low. In my example, I increased the pension funding to what I think is minimally necessary to fund these defined pension benefits, along with another 3% for retirement health benefits. I also assumed public employees in California, on average, contribute 5% of salary to their retirement plans in the form of withholding, which I think is a high number.

    So if you account for my mistaken calculation on vacation, you may reduce my estimated average California public sector employee total compensation down to $95K. But if you use realistic numbers for current funding required for retirement health care commitments, if you assume less than a 5% average contribution by public employees to their pension fund via withholding, if you increase the paid days off differential to a number greater than 10 per year, and if you account more accurately for the many other current benefits that I valued very conservatively, I think you will still come up with a number of $100K or more. But you’re right, I did make a miscalculation on the vacation number.

  • oz

    Alright Ed,

    We’re getting there, and I appreciate you being fair enough to admit a mistake. You seem insistent on deriving this on your own, so I’ll help you out. There are still some errors in your derivation.

    You begin with “The average public sector worker (in CA) makes 65k/yr (in base wages)… Why is this particular part of your statement untrue? Think about it. Get back to me. This is important if you’re not willing to accept any other studies or take anyone else’s data. If you want to derive it on your own you need to be very specific and careful.

    You are still spreading false info with 95k/yr.

  • stunon

    Thank you to the editor of this site; very interesting. Answers to many longtime questions. From the perspective of a part-time state employee teaching for U.C., nearing the latter part of my active career, and having had a combination of private, self-employed and government work here are some thoughts.

    1. IMHO, the best way (with admittedly some exceptions and variation) to see if an organization under-pays or over pays, on an overall basis their employees over time is to look at turnover (in particular those who voluntarily leave- “quit”). Using such a metric one would find that state/local/government employees have a substantially lower “quit” rate than the private sector, which implies those folks, again on an aggregate level, view their total compensation package to be on par or better than what the competition offers. This factor may be the major reason why we see so many more long-term public employees than those in the private sector; once there they find the overall combination of pay/benefits, work life, etc. hard to beat.

    2. Another factor is security and stress; I submit (knowing many will disagree) that by and large public employees have less stress and more security than private sector employees. Figure in time trying to find a job with only unemployment (or nothing) to live on in-between; going 6-24 mos without a job can impact total career pay.

    3. I think one of the biggest problems with both perception and the reality of who makes more than who is the general lack of transparency in the public sector. The U.S. military has a very transparent pay scale and retirement system, whereas the state/local employee systems can be complicated and unnecessarily shielded from public scrutiny. For the military, retirement is only a function of paygrade and time in service (there are various allowances and location differentials, but only actual pay is used for retirement, and nobody can spike to any degree as there is no over-time, etc.). If state/local adopted the same level of transparency as the military, I suspect there would be less controversy.

  • Editor

    This discussion is resumed in the post “Why California is Bankrupt” where additional analysis is provided that continues to support an average total compensation estimate of about $100K per year for state/local government employees in California.

  • SelfEmp

    Yeah, I am a self-employed. I work two hours every day. After deducting most of my household expense such as food, drink, cell phone, gasoline, even the airline and hotel cost for my family’s annual international vocation, my annual income is only $1. In comparison, the average $65k/yr earned by those public sector workers is just outrageous.

  • I have to confess that I sometimes get bored reading the whole thing but I feel you can add some value. Bravo !