State and Local Government Pay and Benefit Growth Has Outpaced Private Sector, Report Finds

Pension benefits have helped drive overall compensation growth rates for state and local government employees over the past two decades to levels that have edged out the pace of increases in the private sector, according to new research from a conservative think tank.

Despite these findings, state and local governments around the U.S. continue to report difficulties filling jobs, especially in fields like law enforcement, information technology and engineering. And teachers last year went on strike in West Virginia, and staged walk outs in states including Arizona and Oklahoma over pay and other issues.

The study, published this month by the American Enterprise Institute, compares growth rates in pay and benefits from 1998 to 2017 between the private sector and three separate groups of public employees—federal civilians, general state and local government, and public education, including employees at public schools and universities.

“When you look at state and local government and public education, there’s a lot of concerns wages are not keeping up. But adding the benefits in gives you a different kind of story,” the study’s author, Andrew Biggs, said by phone last week.

There are considerable differences in salary and benefit growth between states, his report acknowledges. But Biggs adds: “There is not a single state in which pay and benefits for state and local government employees grew more slowly than for private sector workers.”

The time frame the research looks at includes years around the late 1990s when state and local governments may have been more inclined to beef up pensions, and the era after the Great Recession when many governments have sought ways to trim the cost of retirement benefits, sometimes by making them less generous for new hires.

‘They've Moved Up’

After accounting for inflation, Biggs found that wages did increase more substantially in the private and federal sectors compared to the state and local government groups over the two decades he studied.

Real average wages per employee increased 15 percent in the private sector and 23 percent for civilian federal employees. For those in general state and local government and public education, the pay increases were 8 percent and 5 percent respectively.

But Biggs also incorporates federal data to measure the pension benefits public employees accrue. Benefit growth across the sectors, he says, was: private (39 percent), federal (116 percent), general state and local government (90 percent), and education (84 percent).

After factoring in the benefit figures, Biggs says total compensation growth between 1998 and 2017 was 38 percent for the private sector, 40 percent for the education category, 44 percent for the state and local general government group, and 67 percent for the federal sector.

He emphasizes that from these results it’s impossible to conclude whether public employees are “overpaid” or “underpaid.”

What the findings do show, he said, is that public employees have climbed in the nation’s overall income distribution over the past 20 years. “If they were middle class or upper middle class before, they're more so now,” he said. “They've moved up.”

One question about the findings is how they may have been influenced by forces in the private sector like wage stagnation, weaker unions and the loss of middle-class jobs in fields like manufacturing—the U.S. shed about 5.5 million manufacturing jobs between 2000 and 2017.

Another is whether the universe of public sector jobs demands a larger share of employees with higher levels of education and other qualifications, compared to the private sector as a whole.

For example, a report published last summer by the left-leaning Economic Policy Institute says that over 60 percent of state and local government union workers have a four-year college degree or more education, compared with one-third in the private sector.

As for how trends in the private sector could have weighed on his results, Biggs concedes there are factors—such as declines in unionization, shifts in trade and new technology—that may have hurt wage growth for some private sector workers during the past 20 years.

But he said he did not suspect this had an enormous effect on the outcome of the study and stressed that it looks at averages, which are pulled up by very high earners.

He also noted that an argument for increasing wages and benefits for public employees is that it helps with recruiting and retaining a qualified workforce. But this, he says, requires considering the labor market conditions in which a government is hiring.

“It may not be great if wages are stagnating for various reasons in the private sector,” Biggs said. “But it does in fact mean it should be easier to attract people into public sector jobs.”

He acknowledges that the average public sector employee may have higher levels of education and skills than the average private sector worker. “So they should make more,” he said.

But he said he doesn't believe there's much evidence to show that today's public employees are far more educated, skilled, or qualified than they were in the past.

When it comes to whether the pace of growth for public sector compensation is justified, Biggs added: "I don't think it is, because so much of it happens on the benefits side.”

But Recruiting Challenges Persist

The Center for State and Local Government Excellence regularly conducts research on state and local public workforce issues.

In a survey of about 300 state and local government human resources staffers last year the group found between 21 and 23 percent reported difficulties filling jobs in fields like accounting, IT, and engineering, while 27 percent said they’d had a hard time hiring police.

Only 56 percent of respondents said they thought their organization offered wages that were competitive with the labor market. Ninety percent said the same about benefits.

"Compensation itself tends to lag somewhat with the private sector,” Gerald Young, a senior researcher with SLGE said by phone last week.

“That's something that as you're looking to recruit people can be a challenge,” he added.

Meanwhile, Economic Policy Institute issued a report last year estimating the gap between public school teacher wages and other college graduates. It found average weekly wages for teachers in 2017 were $1,137, or $339 shy of the $1,476 other college graduates earned.

The group also says that the “wage penalty” for teachers in 2017 had grown to 18.7 percent from 1.8 percent in 1994 and gains in benefits have not been enough to offset it.

Biggs in his report specifically criticizes some of the methods that the EPI-affiliated researchers have used to calculate benefits. EPI didn’t follow-up on a request for comment about his study.

Young points out that the recruiting problems state and local governments have reported have been on the rise for certain professions over the past decade.

For instance, in 2009, around 5 percent of respondents to a survey like the one conducted last year said they were having a hard time hiring engineers. By 2018, that number had risen to 22 percent. There were similar trends with police and firefighters.

“What we're really seeing is that there's still a difficulty in getting people to come to state and local government,” Young said.

He noted that since the Great Recession, which began in late 2007, there’s been a shift toward reducing pension benefits or changing them in ways that may require increased employee contributions, or extending the number of years before someone becomes fully vested.

Biggs contends very few states have carried out what can be considered major pension overhauls.

In the meantime, Young says some state and local employers are trying out new perks that aren't tied directly to compensation that might help attract workers, like flexible work schedules, telecommuting options and opportunities for training and advancement.

“All of those types of things,” he said, “are among the programs that jurisdictions are experimenting with and implementing.”