'Out of Balance' and Bad at Math

A new paper from the National Institute on Retirement Security observes that state workers receive an average of $22.17 an hour in wages, local workers receive $22.15 an hour, and private sector workers receive $20.57 an hour. But even so, they argue that public-sector employees receive wages that are 11 percent to 12 percent below private-sector averages. They do this by adjusting wage rates to account for demographic differences between the two groups, such as sex, race and educational attainment.

The methods that generated the figures are inappropriate for the authors' intended purposes. Setting that aside, however, the paper also uses questionable math in its discussion of whether generous public-sector benefits overcome what the authors see as public-sector wage deficiencies, and when calculated directly, the alleged wage discount disappears.

If we accept the authors' number that public-sector employees are underpaid by 11.6 percent, they should be paid $2.91 more per hour. Public-sector employees, however, receive $5.29 more than their private-sector counterparts in non-wage benefits. This more than makes up for any "deficiency" in public-sector pay — in fact, even using the NIRS's correction, public-sector workers still receive about $2.40 more per hour in compensation than private-sector workers.

The NIRS' computation, on the other hand, was convoluted at best. To see whether higher public-sector benefits outweigh the supposedly lower public-sector wages, the authors attempt to adjust the discounted value of state employee compensation (0.886) upward using a wage ratio. This wage ratio is based on the fact that wages comprise a larger percentage of total compensation in the private sector than they do in the public sector. The result of this calculation, they claim, indicates that public-sector benefits are not large enough to overcome the supposed public-sector wage deficiencies.

The authors of the study sought to show that more expensive benefits packages were insufficient to address their calculated public sector underpayments. But when calculated in the most straightforward manner, the author's data shows that state and local government employees receive a premium for the work they provide. 

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