Monday, May 17, 2010

New insights into the debate on public sector compensation

Two local university professors have waded into one of the most controversial public policy questions of our day: is the compensation of government workers out of line with the private sector?

The relevance of the question is obvious in the wake of the severe recession and its impact on the ability of governments at all levels to maintain existing services. It gained considerable traction with recent cover stories in Barron's and Forbes, and it has played out in fierce political battles in places like Minneapolis, New York, New Jersey and right here in Milwaukee County.

In the midst of this controversy comes a new report commissioned by the National Institute for Retirement Security and the Center for State and Local Government Excellence entitled "Out of Balance: Comparing Public and Private Sector Compensation Over 20 Years". Interestingly, the report is authored by two professors from the Department of Economics at the University of Wisconsin-Milwaukee, Keith A. Bender and John S. Heywood.

Governing columnist and employee benefits expert Girard Miller wrote a lengthy piece analyzing the report. While making note of the pro-public service bent of the report's sponsors, Miller notes the validity of its approach, which was to examine comparable public and private sector jobs not only on the basis of what the jobs pay, but also on the basis of educational qualifications and other factors that would logically influence pay levels. Using that approach, the authors find that "wages and salaries of state and local employees are lower than those for private sector workers with comparable earnings determinants."

Miller also raises several questions regarding the report's methodology, however, including the possible over-weighting of highly educated teachers, and the failure to take into account unfunded retiree health care liabilities when determining the value of public employee benefits.

Obviously, this issue is not going away, particularly as many state and local governments gear up for another round of excruciating budget deliberations this summer and fall without the benefit of federal stimulus dollars. And, as one who has worked in both sectors, I think continued discussion about public sector compensation is appropriate.

Indeed, even if public sector compensation is shown to be lower than the private sector, it is legitimate to consider whether perhaps that should be the case given that there are many non-compensation factors that make government service attractive to those who work there.

At the same time, it is critical to remember you get what you pay for, and setting public sector compensation levels too low might backfire by leaving government incapable of attracting and retaining workers with the qualifications required for increasingly complicated and politically-charged jobs.

As with most controversial public policy issues, those with pre-determined opinions on public sector pay likely can find the right data to support their position. Let's hope that as the debate rages, those who are making the decisions take into account both sides, including the insightful research performed by our two local professors.

1 comment:

Jo said...

Reason offers another good critique of the work done by the "Center for State and Local Government Excellence Group"