Over the past year several attempts have been made here to evaluate just how much public sector employees make in total compensation. The most comprehensive of these was “Public Employee Compensation,” published on Oct. 24th, 2010. In that post, which as of this writing has attracted 44 comments from very informed readers, it appears fairly well-settled that the average total compensation for a state or local worker in California is about $100K per year, and the average total compensation for a private sector worker in California is slightly under $60K per year.
This data comes with a lot of caveats, two of which are worth highlighting, (1) total compensation is based on putting a value on current funding requirements for future retirement benefits, including pensions and health insurance, using a conservative inflation-adjusted 3.0% return to retirement benefit funds; currently, for example, CalPERS uses an after-inflation return projection of 4.75%, and (2) a true apples-to-apples comparison of public sector compensation to private sector compensation should normalize for the average skill sets that characterize the workforce in each sector. Advocates for retaining the higher rates of average compensation to the public sector argue, for example, that on average, public sector workers have higher average educational attainments. There is clearly a degree of truth to this argument. Another argument frequently heard is that public safety employment entails personal risk that doesn’t accrue to jobs in the private sector, and this too has validity. The real question is how much premium is appropriate for jobs that require higher levels of education and personal risk.
Something that has become quite clear during all this analysis and discussion is this: The rates of pay that state employees enjoy, on average, is lower than the rates paid to local employees. This is particularly true with respect to local public safety jobs in law enforcement and firefighting. In the post “The Price of Public Safety,” which looked at compensation data for employees of the city of Costa Mesa, a total compensation analysis indicated their firefighters collected an average total annual compensation of $202K, and their police officers collected an average total annual compensation of $197K. In the post “California Firefighter Compensation,” which looked at compensation for firefighters working for the city of Sacramento, a total compensation analysis indicated the average total annual compensation for these firefighters was $180K per year.
There is an interesting website called “Public Safety Project,” edited by a citizen activist in El Segundo, California, that has an impressively comprehensive compilation of data resources on the topic of public employee compensation in that city. El Segundo is close to my heart, insofar as I lived and worked there for three years immediately after graduating from college. I worked for Hughes Aircraft Company, in their high-rise on the corner of the Imperial Highway and El Segundo Boulevard, and I rented a one bedroom apartment just off Main Street in the heart of this charming small town. El Segundo, which is surrounded by a power plant, a sewage treatment plant, then the Pacific Ocean, to the west, Los Angeles International Airport to the north, a massive Chevron oil refinery to the south, and compound after compound of aerospace companies to the east, is essentially cut off from the rest of Los Angeles. It is a tranquil suburb with rolling hills and a downtown center that could have been lifted out of the Iowa cornbelt. So I felt more than just an interest in the data when I stumbled across this website. And I was saddened to learn that El Segundo, like most cities and counties in California, has been hijacked by public sector unions, and they are flirting with bankruptcy because they can’t afford their payroll.
While Public Safety Project focuses on rates of compensation for public safety personnel in El Segundo, they offer links to compensation data for all the city employees, as well as links to the labor agreements governing these pay rates, as well as links to other databases around the state on this topic, as well as links to the enabling legislation that has brought us to this point. As Editor Mike Robbins puts it, “Public employee labor unions, especially firefighters, police, school teachers, and nurses, provide campaign support to help elect the politicians who will be their bosses and determine the terms of their labor contracts, including salaries, benefits, and pensions.”
According to information obtained by Robbins, the average compensation for El Segundo’s 57 full-time firefighters is $161K per year (ref. Sworn Firefighters), and the average compensation for El Segundo’s 64 sworn police officers is $139K per year (ref. Sworn Police Officers). Overall, the average compensation for all 273 city employees in El Segundo (including the police and firefighters) is $109K per year. If you crunch the numbers, this means the average non-safety employee in El Segundo is earning $77K per year. But there’s much more to this, because Robbins data (ref. City of El Segundo, Full-Time 2009 Employee Earnings) does not include benefits.
The best explanation of what benefits overhead costs on top of base wages is offered in the post referenced earlier, Public Employee Compensation,” and the rate developed there, 36% of total compensation (which translates into an overhead factor of 56% of compensation before benefits) is almost certainly a conservative rate. That is because this figure is exactly the same figure the pro-union, UC Berkeley affiliate, Center on Wage and Employment Dynamics came up with in a policy brief in October 2010 entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated.” In this comprehensive study, the Berkeley researchers came up with a 56% benefits overhead calculation for the average state/local employee in California, without adjusting for a higher pension fund contribution. In the study performed here, a 3.0% inflation-adjusted rate of return was used instead of the 4.75% official CalPERS rate, but very conservative assumptions were made regarding the value of the other benefits, such as health insurance and vacation, etc., causing the amounts to offset. In reality, the Berkeley researchers were probably correct regarding the value of these other benefits, since they did a much more comprehensive analysis and had no motivation to over-state those numbers. Also, statewide, public safety workers represent 15% of the state/local workforce. In El Segundo they represent 44% of the city’s workforce, and since public safety employees receive far more costly overall benefits than non-safety employees, using a 56% benefits overhead factor to calculate their actual total compensation is decidedly conservative – but here are the calculations:
El Segundo’s average total annual compensation for their firefighters, including benefits, is $251K per year, for their police officers, the average total compensation is $216K per year, and for all other employees, the average total compensation is $120K per year. These are staggering numbers. This is the reason California’s cities and counties are going bankrupt. Is the premium for education and risk worth this much? Read the labor agreement negotiated by El Segundo’s city council with their firefighters – it is not atypical. When you factor in vacation, a journeyman firefighter works two 24 hour shifts every 7 days. Is this worth paying, on average, $251K per year? It is disingenuous to suggest there shouldn’t be a premium paid to anyone involved in public safety. El Segundo’s proximity to some of the most concentrated infrastructure in the state – LAX, a refinery, and a power plant – guarantee that at any moment their public safety employees may have to help manage a maelstrom unimaginable in small-town Iowa. But how much risk premium is affordable, and how much can taxpayers afford? And how much might risks be mitigated if compensation were lowered to market rates, so more public safety workers could be hired while still saving money?
Most policymakers, much less voters, are still familiarizing themselves with the concept of total compensation. But this is the only fair way to compare public sector and private sector compensation. Because in the private sector, the employer puts aside 6.2% for Social Security (in addition to what is withheld from the employee’s paycheck), and they put aside 1.45% for Medicare. This, along with possibly a contribution to the employee’s current health insurance premium, and maybe a matching contribution to their 401K plan, is all they get. And that amount in employer benefits, over and above what appears on their W-2, is what they actually earn. That is their total compensation. In California, the average total compensation for private sector workers is $60K – probably much less than that, since the data used only included full-time, non-self-employed workers.
As always, readers are encouraged to comment and offer contradictory data. Anyone who believes these figures are incorrect is invited to explain how and why.
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