Friday, September 21, 2007

The Dubious Claim of a Public Worker Gravy Train

Prompted by a recent report by the Wisconsin Taxpayer Alliance (WTA), Jo Egelhoff of FoxPolitics.net got on the topic of public sector vs. private sector compensation in Wisconsin.

According to the WTA report, average public sector benefits are 50.1 percent greater than the average cost of benefits found in the private sector in the state. This, Egelhoff concludes, is a sign that public sector workers are on a "gravy train" in Wisconsin.

Such a conclusion, however, doesn't tell the whole picture.

For starters, simply comparing "average" benefits packages misses a key point, which is that not all private sector packages are worse than their public sector counterparts. To be sure, a number of top executives in the private sector ride a pretty nice gravy train of their own when it comes to benefits.

And I'm not mentioning that as a "gotcha," but rather as a means for pointing out a fundamental difference between benefits in the public sector and benefits in the private sector.

As a relatively low-level administrative employee at UWM, I get paid a heck of a lot less than the chancellor (and justifiably so); but, in spite of the salary difference, I still get the exact same health care package as he gets, and so does every receptionist on campus, every custodian on campus, every full-time food service worker on campus, etc. That's not something you could say about top executives and lower-level employees at too many private sector corporations, particularly ones that come close to the size of UWM.

Just to clarify, I'm not trying to make the point here that private corporations should need to give the same benefits packages to all employees -- that's an entirely different discussion -- but rather my point is that while a wide gap has developed in much of the private sector when it comes to your position and the benefits you receive, the public sector has opted to keep everyone in largely the same boat when it comes to benefits, which is a big reason why "the average" cost of benefits for the public sector is so much higher than the private sector.

But even more fundamental than that is the issue of total compensation -- that is, benefits plus salary.

Jo addresses the issue of salary in her post, citing some average salary figures from 2005 that were included in the WTA report along with some figures crafted by the conservative Maine Heritage Policy Center (MHPC). Both suggest that even when you factor in salary, Wisconsin public sector employees are still making out better than employees in the private sector.

But, really, you don't need the WTA or the MHPC to relay the total compensation figures for Wisconsin -- the Bureau of Economic Analysis (BEA) publishes those figures on its website for everyone to see, and it even breaks it down by industry and individual county.

Using the BEA data, we can see that total compensation for the private sector in Wisconsin grew 17.6 percent between 2001 and 2005, while total compensation for the public sector grew 18.7 percent in the same period.

And, if you look at the data prior to 2001, when the economy was still kicking in high gear between 1998-2000, private sector compensation grew at 12.1% in Wisconsin while public sector compensation only grew at 9.7 percent. And if you take out the big recession years of 2001 and 2002, and just look at the last three, private sector compensation again outpaces public sector compensation in Wisconsin, 9.1 percent to 6.8 percent.

But, of course, these macro-analyses are complicated because -- although we can see in the BEA data that total private sector employment increased by 7.5 percent between 1998 and 2005, while total public sector employment jumped 6.7 percent in the same period -- that data doesn't tell us what type of jobs exist in each sector or what type are being created and, as a result, driving compensation increases.

Indeed, just as an example, it seems likely that the private sector includes more minimum wage positions than the public sector (think fast food, retail, etc.). And, even beyond wages, the lowest paid positions in the public sector are still receiving excellent benefits packages, just like the higher ups, while it's a pretty safe assumption that those minimum wage workers at places like Dairy Queen or ShopKo aren't getting much of anything in terms of benefits, especially in comparison to the management at their respective companies.

When that's factored into the aggregate -- thereby increasing the "average" compensation for public workers and decreasing it for private workers -- does it necessarily mean that all or even most public sector workers are riding a gravy train?

All in all, there always should be an eye towards how the public sector is being compensated. But using aggregate data to create alarm about a so-called special gravy train for an entire sector of workers is more problematic than it can be made to appear, particularly considering that aggregate data, in and of itself, isn't even all that alarming.

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25 Comments:

Blogger Dad29 said...

Well, yeah, but...

Considering only "health, dental, 401(k), and pension"--which are the high-ticket cost items in ANY 'bennies' package,...(full-time employees)

The private sector has serious restrictions on 'unequal treatment,' whether through IRS regs or through ERISA (et al.)

Bigwigs in the private sector cannot be given different packages on the above than the regular Joe on their payroll without triggering "Highly-Compensated-Employee" (HCE) IRS penalties. Frankly, that's not the kind of stuff one wants to print in the 10-K, nor does ANY HR exec want to get into a regulatory pissing-match.

So IMHO that comparo is valid.

September 21, 2007  
Anonymous Anonymous said...

Well, the rest of Wisconsinites just lost their chance to get health care as good as the so-called "gravy train."

The Dems just pulled their Healthy Wisconsin proposal from the budget.

So Unhealthy Wisconsin will go, as we say in this state, "forward." And for her own reasons, that will make Ms. Egelhoff happy. But when you see who in the business sector will be happy, too, what does that say about her alleged alliance of taxpayers? Which taxpayers?

September 21, 2007  
Blogger Seth Zlotocha said...

Dad29,

Supplemental packages for executives is an easy way around the HCE requirements. As Wachovia puts it on its website: "Supplemental executive insurance programs provide additional benefits for owners and key executives and address shortfalls in group benefits that often discriminate against highly compensated employees."

I'm sure smart accountants and attorneys can find other ways around it, too. There's just no way the full-time cashier at Kohl's, for instance, is getting the same benefits package -- particularly the same fully-covered benefits package -- as the executive management team.

Anon,

I just read that now about Healthy WI. I actually think this is a good move, as I mentioned a few weeks back. And, what's more, I think it's a move that would've been better a few weeks back, rather than coming now when it'll be spun in a way that suggests the proposal was dropped by popular demand after the onslaught of press releases by GOPers (and Sen. Erpenbach's attempt to assure everyone it wasn't dropped); a few weeks ago it would've been clear that the drop was coming on the Dems' terms.

At any rate, the bigger point is that health care reform is not dead simply because Healthy WI is out of the budget. No one ever expected it to get passed this biennium; the key has been raising awareness and discussion about reform to the point that it can be pursued as standalone legislation, which will happen.

September 21, 2007  
Blogger Seth Zlotocha said...

Also, Wachovia just focuses on executive benefit plans for retirement, life insurance, long term care, and disability, so I thought I'd throw out an example of a supplemental health plan tailored specifically for executives from ArmadaCare.

And I should also add that it appears corporations can get around requirements by using subsidiaries and franchises. As an example, note the benefits for MacDonald's employees working at a corporate site -- which offers health care -- and those working on a store crew, where no health benefits are offered. Big retail outfits like Kohl's, Target, etc., have similar arrangements.

September 21, 2007  
Anonymous John P said...

The Dems will only drop HW if the Rep are to the Hospital tax, cigarette tax increase and a raid on the patient fund. I think the cigarette tax is a good idea, but the hospital tax and the $175 million raid out of the patient compensation funds are bad ideas, especially the raid of the patient fund.

It appears that the Dems used HW only as a budget ploy to get what they want.

Sorry to go off topic

September 21, 2007  
Blogger Seth Zlotocha said...

I know we disagree on this, John. But just because a proposal gets pulled back from the final budget doesn't make it simply a budget ploy. Otherwise, the same could be said for a host of GOP education proposals that were in the Assembly budget but are already off the table, including eliminating Chapter 220 and extending the school voucher program to Racine. I don't think the GOP expected those proposals to be included in the final budget, and it's probably true they put them in for negotiation, but I also think they're very interested in and serious about passing them at some point. The same is true of Healthy WI for the Dems; they didn't expect it to pass in this budget, but they are serious about passing it, which makes it more than simply a budget ploy.

September 21, 2007  
Anonymous John P said...

Seth:

I guess we agree to disagree. The Dems knew along along that Gov. Doyle was not going to sign off on this plan, but they kept it in anyway. I do not think that the Reps will agree to the tax increases, maybe the cigarette tax.

I agree both sides use budget ploys, and I am sure that most Dems are serious about passing it. But I do not believe that it should have been included as a budget proposal. It should have stood on its own merit in a seperate bill. So now, they pull it for exchange for something else.

Oh well, I guess we will let the drama continue.

Regarding the topic of this thread, I do not think one can compare private vs public compensations as an average, I think using a median would be better. Also, it is correct that their are many ways to get around the discrimination tests.

September 21, 2007  
Blogger Seth Zlotocha said...

The GOP knew Doyle wouldn't sign some of their proposals, too, and proposals like eliminating Chapter 220 and expanding the voucher program should stand on their own merits outside the budget, as well (notably, the original school voucher program in Milwaukee passed as part of the budget and never had a separate public hearing).

I guess we'll see how serious the Dems are about passing Healthy WI -- or something like it -- in the coming months.

September 21, 2007  
Blogger Dad29 said...

Umnnnhhh...

I don't doubt that some (mega-large) organizations use various tricks to make their HCE's even more highly-compensated. I'm aware of that.

But when you tote up the numbers of "extra-highly" HCE's in the State of Wisconsin, you're not going to get a lot of them, meaning that "average" will not be significantly affected, although "median" might.

One could just as easily point to the Waukesha School District's comp-plan, which has 5-year-experienced teachers earning the max--$70K--because they have an MS, and say "See!!!"

They are outliers, just like the H2CE's.

September 22, 2007  
Blogger Seth Zlotocha said...

It doesn't surprise me at all that the Waukesha School District pays a higher salary to more experienced and educated teachers. As I said in the post, the public sector does differentiate in terms of salary. The discussion here is focused on benefits packages. (By the way, do you have a citation for your claim about how much a 5th year teacher with a MS/MA makes in the Waukesha district?)

And it's not just a few mega-corporations that offer different benefits packages for executives, otherwise it wouldn't be profitable for so many different companies like Wachovia, Penn Mutual, IMG, and many others to offer them. And let's not forget those big corporations who set up franchises and subsidiaries to avoid paying corporate employees the same benefits as store workers, such as WalMart, Kohl's, Menards, etc.; those are big companies that employ a good chunk of the people in the state, particularly as retail takes over more and more of the US job market. If all full-time employees at those companies were getting the same benefits packages as corporate workers, the jump in compensation figures for the private sector in WI would be noticeable, just as the compensation figures for the public sector would be different if benefits packages were more differentiated based upon job level for public employees.

But, just to clarify once again, my point here is not to assert the public sector "does it better" or that private sector benefits should be more equal. That's an entirely different discussion.

My point here is that the aggregate and average public sector compensation is going to appear higher because no matter the level of the employee -- it could be a food service worker at the campus union or a vice chancellor -- the benefits package is going to be essentially the same. That doesn't mean, however, that all or even a majority of public workers are riding a gravy train when it comes to compensation, particularly when the aggregate compensation figures really don't even suggest it.

September 22, 2007  
Blogger Dad29 said...

See Wiggy's rant about "Resolution." There's an internal link.

By the way--FIVE YEARS experience is not "experience."

Waukesha awards its teachers top-scale wages for DEGREES, not experience.

As to your main point: you've obfuscated sufficiently that I don't really give a rip.

DoL figures make clear that for "comparable jobs" the public-sector is not only paid more than the private sector, but the bennie load is higher, too.

September 23, 2007  
Anonymous Anonymous said...

Just for the record mean, mode, and median are all averages.

I think Seth framing this as a public / private workplace issue is not entirely accurate. It has much more to do with a union / non union workplace. I'd imagine one would not see the same pattern in non-union public work places. Unions set the acceptable standard and the proof of that is administration benefits stay pretty close to that standard.

The fact of the matter is many of those in the private sector are subsidized by those in the public sector. How many businessmen have wives that are teachers, or farmers who have wives that work for the state. The truth of the matter is many private sector jobs are being subsidized though public sector jobs or city, state, and federal health care and income supplemental programs.

A better question is what is the relationship between public sector employment and private sector wage and benefit deflation. Another question would be how many employees qualify for food stamps, EIC, and / or Badgercare in the public and private sector?

Before we can even entertain the notion the unionized public sector employees are on some kind of gravy train, we must first ask if the private sector is paying a 'fair price for labor". Fair being defined as sustainable - not dependable of public sector employment or government programs.

http://proletariat.nateweb.info

September 23, 2007  
Blogger Seth Zlotocha said...

Dad29,

Care to cite those DoL figures? The only thing I could find on the site was this, but it's from 1993. Nevertheless, here's what it says: "In fact, the differences in the cost of compensation in the public and private sectors stem from a number of factors, particularly the large variation in the work activities and occupational structures of the two sectors. ... For example, certain activities that are required in government, such as public education and safety, call for a large proportion of white-collar professionals and highly skilled service occupations. In contrast, certain industries such as manufacturing, wholesale trade, and retail trade, are unique to the private sector, and require occupations with comparatively lower compensation costs, such as sales. When certain industries common to both sectors are examined, such as health services, total compensation costs are similar."

The issue of different "occupational structures" is one of the exact points I bring up in my post, particularly my argument about more minimum wage positions in the private sector. Let us know if you've seen something from the DoL that's more recent, or something that supports your point.

And just because you don't have a response, doesn't mean I'm obfuscating the issue. I lay out the figures directly from the BEA, along with some analysis about how benefits packages are treated differently in the public vs. private sector. How is that trying to confuse the situation?

Nate,

Unions are important, especially with blue collar positions, and that's something I should've mentioned in the post. Thanks for bringing it up.

That said, unions probably don't play as big of a role in the public sector, precisely because of what the DoL quote above discusses in terms of the high proportion of white collar jobs in the public sector. To be sure, non-union public sector work places in Wisconsin do operate in the same way as unionized public sector work places when it comes to benefits. For instance, I'm a non-union public worker at UWM -- along with thousands of other unclassified UW employees -- and I still get the same benefits package as the top executives on campus and in the UW System.

September 24, 2007  
Blogger Russ said...

This discussion does not cover the root cause of the growing public vs private compensation differential.
Globalization (fierce global competition) has forced the private sector to compete with Asians and all low cost providers of goods and services.
Benefit cuts were necessary to stay in business. The public sector, on the other hand, is not subject to foreign competition, or so they think.
That fact has taken us to the point taht some school districts pay $24,000 per year for Rolls Royce family health insuarnce, whereas may private sector companies provide coverage for as low as $8,000, or even less.
The problem can be summed up as follows:
"When competition holds your feet in the fire your emplyer "shops" for a way to continue providing benefits, when you're part of a public education government monopoly your employer pays whatever WEA Trust charges".

September 24, 2007  
Blogger Seth Zlotocha said...

Back in the spring, Russ, you emailed me the exact comment you're leaving here now. At the time, I replied with the same BEA figures for WI that I cited in this post -- which clearly show that over the last eight years on record, public sector and private sector compensation has grown at essentially the same rate -- and you never reconciled those figures with your argument. Now you're coming back with your original comment again. Let's try to move to discussion forward.

September 24, 2007  
Anonymous Anonymous said...

Seth,

You're right that labor and administration have similar benefit packages. That is mostly because unions set an acceptable bar. Without union labor you may have a similar package but those at the bottom would not. There is pressure to keep administration benefits in check because if the benefits detour too far, that will be a topic for the next contract negotiation.

I am sure that the discrepancy would be much greater with public employees in right to work states.

I still think the elephant in the room is how the public sector subsidizes the lower benefits in the private sector.

September 24, 2007  
Blogger Seth Zlotocha said...

Nate,

Yes, as I noted, unions tend to help more with service-level or blue collar workers. My point is that the public sector has a smaller proportion of those types of workers than the private sector, which is exactly what the DoL report cited above was pointing out. The public sector isn't a mirror image or microcosm of the private sector.

And it's true that the public sector subsidizies lower benefits for a good number of families where the second income earner works in the private sector; but I'm not so sure that's widespread enough to warrant saying that the public sector as a whole subsidizes lower benefits in the private sector as a whole. And it's also true that some low-benefit private employers, like WalMart, have their low-level employees rely on the state for benefits such as health care. Again, though, I'm not sure that's widespread enough to warrant a very broad charge.

September 24, 2007  
Blogger Russ said...

Seth
You ask me to rationalize the fact that public sector worker benefits are 50% higher than the private sector. You rationalize it.
Better yet watch Michigan. The UAW has just struck GM. Obviously state of Michigan tax revenues are going to drop substantially when thousands of workers go down to 200 bucks a week. I think there's a real possibility Michigan may be the first state forced to rollback unsustainable public sector benefits. We can all sit back and watch it play out. On the other hand maybe, just maybe, the GM workers will go back to work BEFORE they destroy General Motors AND the state of Michigan.

September 25, 2007  
Blogger Seth Zlotocha said...

Russ,

I asked you to reconcile (not rationalize) your argument about public sector compensation with the BEA figures that show public and private sector compensation has increased at virtually the same rate in WI over the past eight years on record.

As for explaining the 50 percent difference, the DoL already did that and I cited it above.

September 25, 2007  
Blogger Russ said...

I read your DoL statement. It's simply not correct. I know Ford workers that chose their teacher spouses health insurance over Ford's. And Ford had one of the most lavish plans in the United States. It's now obvious that the UAW will force GM and Ford to eventualy shut down all US manufacturing because they will not give up their unsustainable benefits. The fact that is insanity is beside the point, the juries in, the UAW workers have made their decision. Now here we are with public sector benefits that are even better than the UAW had and yet government workers will not agree to bringing benefits in line with private sector benefits. As I said, watch Michigan.

September 25, 2007  
Blogger Seth Zlotocha said...

Sure, Russ, the Bureau of Labor Statistics is wrong in its analysis and the Bureau of Economic Analysis is wrong on its compensation figures, and your perceptions about your friends who work at Ford are right.

I repeat what I said above about trying to move the discussion forward.

September 25, 2007  
Anonymous Anonymous said...

Seth,

I certainly have no doubt that the majority public sector employees (city, federal, state, county) have a spouse in the private sector. I also think you grossly underestimate amount of private sector businesses that are subsidized by government programs. Go to the northern parts of the state, the whole economy is based on EIC.

Its of course fun to pick on Wal-Mart but most private sector businesses do not pay there fair labor value - the value where labor is independent from public assistance.

What public sector do you work in. By far the majority of public employees are of the blue collar variety. I am sure that your benefit package would be the same nevertheless, but the blue collar worker's would not without a union. The motive for benefit equity is that when your benefits increase it will be a discussion at the next contract meeting.

September 26, 2007  
Blogger Seth Zlotocha said...

Nate,

You're continuing to confuse what I'm saying. I'm not making the point that the majority of public sector workers are white collar (I'm really not sure if they are or not -- my guess is that overall, they're not; but where I work -- in the UW System -- they might be). What I'm saying is that the proportion of white collar workers is greater in the public sector than the private sector, which is a large reason why -- and the BLS quote above supports this -- the aggregate and average compensation figures are so different between the two.

In terms of the public sector subsidizing private sector compensation, you might be right that the majority of public sector workers have a spouse in the private sector. But to share benefits, we're really talking about the subset of married public sector workers who have a spouse in the private sector. And maybe that number is large enough to impact private sector compensation, but considering that a place like Milwaukee only has 11 percent of its workforce in the public sector to begin with -- not counting all of those non-married workers or workers who are married to another public sector worker -- I just don't see it having a significant impact overall. But if you have some data to suggest otherwise, let me know.

Regarding private sector use of government programs to assist with compensation, I'm remembering now a COWS report that I highlighted last December on this very issue. With that in mind, I should've given some weight to that issue in the post. Thanks for bringing it up here.

September 27, 2007  
Anonymous Anonymous said...

Well I don't now what white collar would be, to me there is either workers or capitalists. I guess you're losing me because I thought your initial argument was unlike the private sector there was a degree of equity with benefits. Are you now arguing the disparity is because of more white collar workers.

As far as public sector subsidization it might be geographical. I think a 10% private sector here in Madison might be a stretch. I know lots of teachers working 50% time for the benefits with spouses in the private sector.

September 27, 2007  
Blogger Seth Zlotocha said...

You referenced blue collar workers in your last comment, Nate, so I just figured you had an idea of who white collar workers would be. For the most part, I'd say the difference comes down to professional vs. non-professional. Of course, these aren't black and white distinctions. But, to give an example, I'd say in the K-12 setting, teachers and administrators (traditional "white collar") would fall into the professional category, while main desk receptionists (service workers) and the custodial staff (traditional "blue collar") would both fall into the non-professional category.

And I've really been making both points you bring up -- the compensation disparity is due to the higher percentage of professional category workers in the public sector and the fact that virtually all public sector workers get the same level of benefits. I don't think those points are in opposition to each other. I did focus more on the latter point in the post, while the second one developed more in the comments.

And, yes, there are more public sector workers in Madison, but the article cited above still only puts the figure at 23 percent. That's significant, but it still means that 3 out of 4 Madison workers are in the private sector, and Madison is probably going to be the highest in the state when it comes to percentage of public employees.

September 27, 2007  

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