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Are state employees in Michigan underpaid? A look at the statistics on salaries and benefits in the private sector compared to state government employees suggests not. In fact, compensation for state government employees has been growing at a faster rate than in the private sector.
According to data from the Michigan Employment Security Commission, the average private sector employee earned $21,048 in 1984; in that same year, the average state civil service employee was paid $22,615. Ten years later, the numbers were $29,342 and $35,029, respectively. So while state government employees saw an increase in their pay of 54.8 percent, private sector employee pay rose by only 39.6 percent.
Put inflation into the equation and the result is even more disturbing. Over the same ten year period, prices rose an average of 42.6 percent. In real terms, private sector workers fell behind while government employees moved well ahead.
What about benefits? Do private sector workers make up the earnings gap with higher fringe benefits? Quite the contrary. In 1994, state employee benefits averaged 47.2 percent of the base payroll, whereas in the private sector nationwide, benefits averaged 28.9 percent of base payroll. Generous benefits account for much of the growth in state employee compensation. Total average benefits including health care and pensions for state employees increased by 90.6 percent-from $8,667 to $16,523--between 1984 and 1994. Michigan's state employees enjoy the Cadillac of benefits.
Michigan's high costs are dramatically documented in a recent study of state employee health benefit plans conducted by the Segal Company of Atlanta, Georgia. The study showed that in 1994, the average health benefit expense per state employee in the 50 states was $3,012. Michigan's health benefit expense-more than twice the national average at a whopping $6,897--ranked as the highest in the nation and $1,408 more than New Jersey, the next costliest state. Even nearby states are far below Michigan's costs: Ohio, $3,591; Indiana, $3,459; and Illinois, $2,924.
Add it all together and the result is this: In 1994, the average total compensation (salary plus benefits) of the state's civil service employees was $51,552, compared to $41,270 for employees in the private sector, a differential of 24.9 percent. These numbers do not include the 3,800 state employees whose jobs are not included in civil service, such as legislators and their staffs, judges and court employees, the governor and his staff, and top personnel in the executive departments.
Michigan is not alone in excessive government compensation. A 1994 report from the American Legislative Exchange Council (ALEC) estimated that annual state employee compensation exceeded that of private employees in 48 states. But in 27 states, the margin of government over private compensation was smaller than it was in Michigan.
The ALEC report explained why state government pays so much more than the private sector: "Private companies do not have the freedom to artificially raise employee compensation . . . . A company that raises employee compensation above levels that customers are willing to pay (in the prices for the goods they buy) will lose market share and eventually close . . . . Government, unlike private employers, can artificially inflate public employee compensation, and compel the taxpayers to pay."
Furthermore, a relatively high percentage of state employees in Michigan are unionized-about 73 percent. That compares to just 19 percent of private sector workers in Michigan, and a tiny 12 percent of all private sector workers nationwide. Aggressive unions have forced state compensation up over the years, and only recently have shown willingness under pressure to roll back or restrain pay and benefit hikes.
After three years of personnel cutbacks in the Engler first term, state employment is growing again. So are compensation costs. Legislators and analysts have suggested a number of reforms to correct the problem. Imposing a hiring and pay freeze is one proposal. Another is to require state employees to contribute something to their pension plans (currently the state picks up the full tab). One legislator has even suggested requiring state employees who smoke to pay a 10 percent surcharge on state-provided health insurance. A concerted effort to inject competition into more state services by putting them up for bid-in short, privatization-is one proven way to bring costs in line.
State employees are generally good, honest, hard-working citizens who try to do their jobs well. But that's at least as true for the people who work to pay the taxes that make government possible in the first place. Government does not exist primarily for the benefit of those who work for it, but rather for the benefit of society at large. Putting balance back in the public-private compensation picture is, ultimately, an issue of fundamental fairness.
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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