Researchers examine California public, private workers’ pay, total compensation

October 18, 2010
By: Kathleen Maclay, Media Relations

California taxpayers are not overpaying or overcompensating their state and local workers compared to private sector employers, according to a policy brief released today (Monday, Oct. 18) by the Center on Wages and Employment Dynamics at the University of California, Berkeley's Institute for Research on Labor and Employment (IRLE).

Wages earned by California's public employees are about 7 percent lower, on average, than those received by comparable private sector workers, according to the report. However, the researchers concluded that when taking into account the more generous benefits of government employees, there is no significant difference in the level of total compensation between the two sectors.

"The Truth about Public Employees in California: They Are Neither Overpaid Nor Overcompensated" presents research findings by Sylvia A. Allegretto, a UC Berkeley economist and deputy chair of the Center on Wages and Employment Dynamics, and Jeffrey Keefe, an associate professor of labor and employment relations at Rutgers University's School of Management and Labor Relations.

"The story of public sector workers in the U.S. and in California is, in large part, one of education," Allegretto said, noting that of California's full-time workers, 55 percent in the public sector hold at least a four-year college degree, compared to 35 percent in the private sector.

Another important difference in the staffing of California's private and public sectors is age. Allegretto and Keefe reported that the age of a typical worker in state and local government is 44, and 40 in the private sector.

The researchers said it has been well documented that educational attainment is the single most important predictor of earnings and that better educated, older workers earn more than less educated and younger workers.

Their regression-adjusted results made possible "an apples-to-apples comparison" that accounts for education and age as well as for gender, race and other critical factors that influence pay, Allegretto said.

The key findings of their report, which is available online, include:

- California's state and local government employees are paid 7 percent less than their private sector counterparts, but when benefits are included, total compensation between the two sectors is similar.

- Public sector workers, on average, are more educated: Of full-time workers in California, 55 percent hold at least a four-year college degree in the public sector, compared to 35 percent in the private sector.

- Private sector workers earn 70 percent of their total compensation in wages and 30 percent in benefits such as vacation, retirement benefits and health insurance, while public sector employees' corresponding percentages are 64.3 and 35.7.

- State and local government workers are more experienced: The median age of state and local government workers is 44, compared to 40 in the private sector.

- Public sector workers in California average more hours on the job each year than private sector employees.

- Retirement benefits account for 8.2 percent of public employee compensation and 3.6 percent of private sector compensation, while public workers earn considerably less supplemental pay and vacation time, and their employers contribute much less to legally-mandated benefits.

"Compensation received by public sector employees is neither the cause – nor can it be the solution – to the state's financial problems," the researchers concluded in their report. "Only an economic recovery can begin to plug the hole in the state's budget."

The researchers used the Employer Costs for Employee Compensation survey, which is conducted quarterly by the U.S. Department of Labor's Bureau of Labor Statistics and provides the only valid and reliable estimate of employer-incurred benefit costs in the country. It includes private industry data by firm size, and includes state and local government employees. The data reflected employment statistics from 2009.

The brief comes out as several states, including California, struggle to balance budget revenues and expenses. Meanwhile, some political candidates are pledging to slash the public sector workforce to save money and better control the state budget. News of the city manager and city council members in the blue-collar town of Bell, Calif., being arrested for looting city coffers of millions of dollars also has intensified the spotlight on public sector pay and compensation.

IRLE Report: