Are California Public Employees Overpaid?

Read the full working paper as an Adobe Acrobat PDF

Public-private pay comparability has become a major political issue in the past year, with some claiming that public workers are overpaid and others claiming they are paid too little. An important aspect of this debate is the difference between federal workers on the one hand and state and local workers on the other. Although federal workers earn higher wages and benefits than comparable private workers, the state-local situation is more complicated. Compared to private workers, state-local workers tend to earn less in wages but more in benefits. The net impact on overall pay is controversial.

The Center on State and Local Government Excellence, the Center for Economic and Policy Research, the Economic Policy Institute, and the Center on Wage and Employment Dynamics (CWED) have all released similar studies arguing that the wage penalty and benefit premium for state-local workers either cancel out or tilt in favor of private workers.

While these studies more or less properly measure wage differences, none of them considers the full benefit premium enjoyed by state-local workers. A full accounting of benefits needs to include retirement healthcare, job security, and pension funding using the proper private sector discount rate. After including these missing pieces of the benefits pictures, we find that state-local compensation is substantially higher than previous estimates.

Because state-level data varies widely in quality and availability, it is still difficult to say whether state-local workers are overpaid on a national level. This paper focuses exclusively on public workers in California, a large state with reasonably good benefits data. Because the authors of the CWED report also focus on California, we contrast our methods and results with theirs throughout this paper.

CWED concluded that California public workers are not overpaid. However, we find that CWED's analysis of benefits leads to a substantial understatement of state-local compensation in California. With a more complete accounting of benefits, public employees in California in fact earn up to 30 percent more in total compensation than comparable private sector workers.

Andrew G. Biggs is a resident scholar at AEI. Jason Richwine is a senior policy analyst at the Heritage Foundation.

Photo Credit:Rob Lee/Flickr/Creative Commons

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.