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Why did the Mackinac Center compare Michigan public-sector benefits to Midwest private-sector averages instead of Michigan private sector averages? Isn’t that apples and oranges?
The only place to get detailed information on the cost of private-sector benefits is the Bureau of Labor Statistics’ National Compensation Survey. Unfortunately, this includes information on a regional basis. The closest available summation was for the region that includes Michigan, Ohio, Indiana, Illinois and Wisconsin.
Figures from sources at the Bureau of Economic Analysis, for instance, only include cash payments for other supplemental pay, which would exclude paid leave and other benefits that may be administered through direct wages. The detailed figures would also be comparable to the information obtained for the state government.
To ensure that the figures from the National Compensation Survey’s region were a good fit for Michigan, however, we compared the wage rates that NCS listed for the region to Michigan’s average wage rate as calculated by the Quarterly Census of Employment and Wages.
For the period in question, wage differences between the surveys averaged only 1.4 percent — a pretty close fit. While that doesn’t necessarily mean that benefits will be close, it strengthens the case that the regional compensation survey is a good proxy for Michigan’s private-sector employment benefits.
Does “private-sector averages” include private-sector workers who, for instance, receive no health benefits at all?
Yes, it does. But it also includes public-sector workers who receive no health benefits at all, too. The services provided by governments are provided by a range of employees under different assumptions about compensation. Figures from the BLS show that both the level of benefits is higher and the availability of those benefits is more frequent in the public sector.
Indeed, in most school districts in the state, even part-time workers are eligible for health insurance benefits if they work 20 hours a week, and state policy mandates their contributions to the state pension fund for all school workers.
How is the $5.7 billion divided among state civil service, public school and municipal employees?
The government schools portion makes up the biggest chunk of the differential at $2,451,900,000; local units of government totaling $1,732,500,000; state colleges and universities comprise $843,600,000, and state civil service employees round at the total at $707,800,000.
Wouldn’t the state Constitution need to be amended to balance public-employee benefits to private-sector averages?
Not necessarily. There are a number of ways to control or influence government employment benefits.
While the state’s direct workforce abides by the compensation packages set by the Michigan Civil Service Commission, the Legislature is free to recommend reductions in pay and benefits for their consideration. These can either be accepted or rejected by the commission, but the commission is more likely to accept policies agreed to by legislative majorities.
There are some protections for teacher compensation in the Teacher Tenure Act, and the unfunded liabilities for pension payments may also be protected. However, these protections represent only a fraction of total government employment benefits.
The state has direct control over the retirement benefits offered by the state and school districts.
State legislation can be passed to guide employment policies at local governments, including changing the rules for making new collective bargaining agreements that cover 60 percent of Michigan’s government work force.
Is it fair to break promises made to current employees?
Fairness cuts both ways. Private-sector workers — those who pay the bills of government — have taken it on the economic chin while Michigan’s privileged class of public employees have remained fairly insulated.
Due to the recession and the reforms made to private-sector benefits packages in the past decade, average wages in Michigan’s private sector fell 7 percent since 2000 and the value of benefits fell 28 percent, adjusted for inflation, according to the Bureau of Economic Analysis. Nearly the opposite happened in the public sector. Wages increased 7 percent and the value of benefits increased 32 percent. It is only fair to normalize the yawning compensation gap.
As to the “promises” made to current employees — the promises have never been a blanket claim to expensive benefits at taxpayer expense, but to follow the letter of the law. Changing the law does not break that promise.
But don’t public-sector employees deserve better benefits because their wages are lower?
On balance their wages are not lower. Indeed, data from the Bureau of Labor Statistics shows Michigan local government average annual pay at $43,546, state government average annual pay at $55,032, and private-sector pay at $42,835.
A 2007 Mackinac Center article, “What Price Government?” compared four job categories within state government against private-sector compensation for the same work that also showed slight salary premiums for government jobs but large gaps in benefits.
So there’s no gap in pay that is closed by generous benefits. Only a premium paid for government work.
Won’t it be hard to attract qualified public-sector workers if the benefits merely match those in the private sector?
It will arguably be no more difficult than recruiting valuable workers in the private sector. Research shows that Michigan government’s total compensation doesn’t just outstrip the private-sector, it often beats the compensation provided in our neighboring states.
A report released Jan. 31 titled “Dollars and Sense: How State and Local Governments in Michigan Spend Your Money” and presented by Gov. Rick Snyder indicates that total compensation for our state employees was 18.3 percent higher than in Wisconsin, 25 percent higher than Ohio and a staggering 32.4 percent higher than Indiana, although not as good as in Illinois and Minnesota. Government employees at the local level do better than every neighboring state save Illinois.
With total compensation so much lower on balance in neighboring states one has to ask, do these governments have trouble recruiting workers?
Aren’t current government employee benefits fair since they were agreed to through the traditional collective bargaining process?
Unfortunately, the collective bargaining process is rigged against fiscal prudence — making the negotiated agreements inherently unfair.
First, there is no “traditional collective bargaining process,” only a process set up by statute. Not every state has collective bargaining for government employees, and many states allow collective bargaining but under different rules. The rules we have in Michigan have led to many municipalities being in a position where they are at serious risk of bankruptcy. This collective bargaining process is not sacred. It can and should be changed.
Second, not all of these benefits were bargained for, especially in the case of police and fire employees. Benefits may be the product of arbitration, in which an outsider will impose contract terms. That outsider is not accountable to taxpayers or employees for the consequences of his or her decisions.
Finally, the point of negotiations is for both sides to find terms that they both can afford. Unaffordable contracts are inherently unfair, not least of all because one side or the other is bound to be shortchanged over the long haul. We are learning now that state and local governments cannot meet the terms of many of the contracts they have signed on to under the existing collective bargaining process. The collective bargaining process in Michigan is a failure, and contracts reached under it are not entitled to any presumption of fairness.
Didn’t a study put out by a Michigan State University professor prove that public-sector workers are underpaid?
No. The paper about retrenchment among state workers was deeply flawed and offered conclusions that were not supported by the data presented. One grievous error in the retrenchment paper was to effectively exclude from discussion the value of non-salary benefits for state employees, which average more than an estimated $30,000 per worker. Mackinac Center scholars authored a very pointed rejoinder titled “A Commentary on "The Retrenchment of the State Employee Workforce in Michigan,” which highlighted nine problems in the piece that make it unfit for comparison between sectors.
Isn’t it unfair to balance the state budget on the backs of a relative few workers?
Again, fairness is in the eye of the beholder. Is it fair that Michigan’s private-sector compensation has decreased 7 percent and the value of private benefits declined 28 percent while conversely, government wages increased by 7 percent and non-salary benefits rose by 32 percent during the same time frame?
It is decidedly unfair that the government class has remained largely unscathed by a decade of lost economic growth. Their security has come at the expense of those who pay their bills. Indeed, every year a conservatively estimated $5.7 billion in wealth is transferred from private to public hands solely to fund the disproportionately generous non-salary benefits received by government servants.
Mackinac Center analysts also argue that normalizing benefits with private-sector averages could prevent government employee layoffs and program cuts. At the very least, government employees could keep their jobs, something that far too many private-sector workers have found all but impossible.
Public-sector employees receive good benefits, but doesn’t that just make up for the fact they don’t get big bonuses like private-sector workers?
No. Bonuses received by private-sector employees do not offset the hyper-generous non-salary benefits received by those in the public sector. According to James Hohman, fiscal policy analyst for the Mackinac Center:
The U.S. Bureau of Labor Statistics reports on the wages and benefits offered to workers around the country. The value of “nonproduction bonuses” — which include holiday bonuses, profit-sharing and safety bonuses among others — is the equivalent of 11 cents an hour for government workers and 45 cents an hour for private-sector workers. These figures are national, not just specific to Michigan.
However, that is not nearly enough to make up for retirement and health insurance differences. Government employee retirement benefits cost $3.26 an hour, but only 99 cents an hour in the private sector. Government employee health benefits cost $4.65 an hour while only $2.10 an hour in the private sector.
When applied to Michigan and including all benefits, government employee benefits cost $6.67 more per hour than in the private sector. All told, balancing these benefits to private sector averages would save the state $5.7 billion.
What percent of public-sector jobs would have to be eliminated to equal the amount of money saved by just balancing the benefits?
On average, the state would have to eliminate one out of every six state and local government work force in order to save enough as much money as balancing benefits would.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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