Comparing Compensation: State-Local Versus Private Sector Workers


Summary:

This brief examines whether benefits close the wage gap between public and private sector workers.

Author(s):
Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby of the Center for Retirement Research at Boston College
Publication date:
September 2011
Filed under:
Research Studies
Key findings:
  • State and local workers have a wage penalty of 9.5 percent.
  • Pension contributions and retiree health insurance help close the gap.
  • Total compensation for public sector workers is about 4 percent less than that in the private sector.
Download publication:

The comparability of state-local versus private sector pay has become a major issue in the wake of the financial crisis. Funded levels of public pension plans declined sharply, and governments’ ability to make required contributions has been severely constrained by the collapse of state and local budgets. Many politicians have sought ways to reduce pension costs and increase revenues.

A number of studies, including this one, have shown that state and local government employees earn less than private sector workers with similar jobs and education. But researchers differ on the extent to which pensions and other benefits compensate for the shortfall. This brief builds on previous studies by refining the estimates of the value of benefits. Key findings include:

  • State and local workers have a wage penalty of 9.5 percent.
  • Pension contributions and retiree health insurance help close the gap.
  • Total compensation for public sector workers is about 4 percent less than that in the private sector.