COMMENTARY: State employees are underpaid – despite misleading study

A new consciousness is trying to take hold in America. It is being spread from state to state by a concerted effort of very determined people who would change the very fabric of life for working women and men.

The effort that is in effect nationwide is to spread information, studies and model legislation offered to legislators and the public as helpful guides to assist them in making policy decisions to reduce the size of government and marginalize or attack the very people that bring governmental services.

Suffering from the effects of a harsh economy that has lingered for nearly a decade and doesn’t have a definitive end, middle-class working women and men are being bombarded with economic reality and political fantasy.

Public employees who are paid less than their private sector counterparts are not immune to this economic phenomenon.

Michael Begatto

Michael
Begatto

It must not be enough for some to watch as family incomes decrease, benefits are diminished or made so costly they are dropped to provide funds to pay necessary expenses and pensions are altered or eliminated. Let’s now demonize these public servants while they and their private-sector counterparts are dealing with burdensome times for their families and livelihood.

We now read in the media [of] a study authored by Andrew G. Biggs, Ph.D., for the Delaware Public Policy Institute — a nonprofit associated with the State Chamber of Commerce — indicates that state employees are paid more than their private sector counterparts, debunking a “myth.” [“State employees better compensated than private sector counterparts, study says,” article, April 20]

Astonishingly, the study doesn’t address the some 3,144 Delaware state employees in the lower pay grades and entry-level positions who are eligible for and receiving governmental assistance programs. We can only assume the study’s voodoo-economic inflated benefits-and-pension calculation would lift them from poverty status.

What is clear is that the analysis and comparison of Delaware state employees’ pay to their private sector counterparts’ needs to be placed in proper context. Simply put, Andrew Biggs, the author of the study, has made a number of calculations designed to lower the estimated salary and benefit costs in the private sector while simultaneously inflating the employment costs of state workers. Mr. Biggs has done a host of these misleading studies of public sector employees’ pay and benefits around the country.

Let’s look specifically at how the analysis compares private sector employee costs with state worker costs. Mr. Biggs reports that, using ACS [American Community Survey from the U.S. Bureau of the Census] data, private sector workers earn on average $61,092 per year in salary while state workers earn $49,967 on average. This is despite the fact that state workers have more education and are older than their private sector counterparts.

Mr. Biggs then runs a regression analysis and reports that a more accurate average salary for the private sector is $55,039. He says the major factors that can affect pay are differences in college majors and the geography of employment and residence. However, Mr. Biggs never reveals what the relative majors of private sector versus public sector college majors are or how they differ. Likewise, he doesn’t disclose any significant geographic differences between the two sets of workers. (As an aside, in a state the size of Delaware, how much of a geographic adjustment should there be?) All we know for sure is that Biggs’ regression analysis concludes that private sector employee salaries should be reduced by $6,053 or 9.9 percent before it should be compared to Delaware state employee salaries.

It doesn’t appear that Biggs has justified reducing private employee salaries by that amount. Therefore, to make this comparison, the average private sector salary should remain $61,092. To that figure we should add the benefit costs that Biggs uses for private sector health and retirement. According to Biggs, average employer costs for private sector health is $8,687 per year. The average private employee receives about $219 per year towards retiree health coverage. Biggs says the average employer contribution to private sector employee retirement accounts is 3 percent. Three percent of $61,092 is $1,833. So, the true total of private sector compensation is $71,831.

For state employees, we begin with the $49,967 in average salary. Biggs’ annual average cost to the state of employee health coverage of $10,530 seems about right. Biggs uses the 9.44 percent normal cost for retiree health care for state employees, which equals $4,716. However, the state can and has altered retiree health care, so, assuming this as a fixed cost is highly questionable. Biggs assumes the state is paying between 23 and 40 percent of salary on state employee pensions. The actual cost is 6.93 percent of salaries, or $3,463 of salaries. That is the state’s normal cost, which is the true cost of providing the pension for state workers for an additional year. So, the total average compensation for a Delaware state worker factoring in benefits is $68,676.

• Perhaps the best place to begin is with the fact that, by Biggs’ own analysis, the average Delaware state employee earns $11,125, or 22.3 percent, less than the average private sector worker in Delaware. Only through extraordinary manipulation of the data does Biggs come up with higher-paid state employees.

• A true comparison of the main components of Delaware state employee compensation shows that Delaware state workers earn $3,155, or 4.4 percent, less than their private sector counterparts.

• This is true even though Delaware state workers have more education and are older than their private sector counterparts – factors that would be expected to increase pay.

• The main reason that Biggs can find that Delaware state employees earn more than private sector workers is that he inflates the cost of pension benefits. He argues that the pension costs Delaware between 23 percent and 47 percent of an employee’s salary.

• The actual cost, as determined by the actuarial firm Cheiron, which analyzes the State Employees’ Pension Plan for Delaware on an annual basis, is 6.93 percent.

While Mr. Biggs has made a career inflating the benefit costs of public employees, a more accurate view of state employee compensation shows that, if anything, state employees are underpaid compared to their private sector counterparts.

EDITOR’S NOTE: Michael A. Begatto is the executive director of Delaware Public Employees Council 81, American Federation of State, County and Municipal Employees. Council 81 represents more than 7,000 public employees in Delaware, including more than 4,000 state employees.

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