NJPP Monday Minute 7/19/10: Public Employees: Are they overpaid?

State and local government budgets are under severe strain. Rather than blame the world-wide recession, which has caused tax revenues to fall and the demand for public services to increase, politicians want to blame public employees who, they claim, are over-compensated.

Gov. Christie has proposed his 33 bill "Tool Kit" as a solution to reducing costs for towns, schools and higher education. The 2.0 percent property tax cap is the centerpiece of his package, which he claims will bring property taxes in New Jersey under control. The Tool Kit includes policy changes in the areas of "civil service, collective bargaining, employee pensions and benefits, red tape and unfunded mandates, election reform, executive superintendent authority and shared services." All of these changes are likely to substantially change public employment in New Jersey.

But are public employees really overpaid?

In May of this year, Rutgers University held a seminar at which this question was the central issue. Professors Jeffrey Keefe from the School of Management and Labor Relations and William Rodgers from the Heldrich Center for Workforce Development presented some facts about public-private employment in New Jersey. Among their findings:

• A basic comparison of wages indicates that private sector employees are on average paid more than public sector employees.
• These comparisons vary markedly when education is considered. Workers with only a high school education are compensated better in the public sector than in the private sector because most public sector jobs are not paid at minimum wage and include health insurance and pension benefits.

The table below compares annual earnings at various education levels. People with bachelors' degrees, those with professional degrees and those with master's degrees all earn significantly more when employed by the private sector rather than the public sector. Clearly the differential between the private sector and the public sector is not due solely to wages.

Comparing Public-Private Annual Earnings

Compensation by Education Private Public

Average Wages $69,979 $56,694

Average Total Compensation $104,409 $89,917

Wages by Education

Less than high school $27,719 $41,000
High school $44,760 $44,050
Some college $53,901 $47,567
Associates $56,181 $50,916
Bachelors $89,041 $56,641
Professional degree $175,141 $79,330
Masters $107,328 $69,171
Doctorate $108,528 $109,482

• Public employees are more educated. Forty-four percent of private sector workers have at least a college degree compared to 57 percent in the public sector.
• Wages of less educated men in the private sector have eroded over time. Some of the possible reasons for this are the erosion of the state's manufacturing base; the decline in private sector unions; and an increase in the supply of less educated and less skilled men.

These trends are mirrored in a report released in May 2010 by John Schmitt at the Center for Economic and Policy Research. He found that state and local employees appear to earn more than private sector employees and he attributes that to the fact that state and local employees are older and substantially more educated than private sector workers. Another interesting bit of data he cites is that 60 percent of state and local government employees are women compared to 46 percent of employees in the private sector.

Professor Keefe has done further analysis of the public-private compensation issue since the Rutgers seminar in May. Many of New Jersey's financial problems stem from inadequate information. If it had been known that the state would lose $24 billion in revenue from the sales and income tax cuts under Gov. Whitman, would we still have done it? If it had been known how high the cost to the state of providing pensions to every public employee who earned $1,900 a year would we still have permitted it?

The Senate is considering bills included in Governor Christie's Tool Kit starting today and the Assembly plans to review the reforms during the summer. That's as it should be - open and public and transparent. But let's also be transparent about the affect this legislation will have on local governments, too. For a change let's do things right. Let's figure out what the true future costs and the benefits of such changes will be to the services provided in New Jersey.