Public and Private Sector Wage Disparity

To begin looking at the actually case studies coming out of New England and Minnesota, first, we need to look at the overall data.  The Center for Economic and Policy Research released a study, “The Wage Penalty for State and Local Government Employees” in 2010 that discussed the actual earnings of state and local workers versus private sector workers when controls were used for age, education, ethnicity, experience, gender, and disability.

The CEPR study found that while public sector employees appear at face value to earn more than their private counterparts, in reality, they earn less.  50% of state and local workers have a 4-year college degree, compared to only 30% of private workers.  State and local employees also tend to be on average 4 years older than their counterparts; and are in majority female – 60% to the private sector’s 46%.

What this all boils down to is when public and private sector workers are matched by age and education, public workers earn between 4 to 11% less then their private counterparts.  In general, that equates to a 2% earning loss for men, and a 6% earning loss for women.

There is one exception to the lower compensation of public workers, and that lies in the low-wage category, where public workers on average see a 6% premium to the typical private sector worker.

The study “Are Minnesota Public Employees Overcompensated?” by Jeffrey Keffe from the Economic Policy Institute found that Minnesota public employees followed much the same characteristics as the national average when using the same controls in the data.  The public sector employees of Minnesota are highly educated, with 60% of full-time workers holding at least a Bachelor’s degree, compared to the 37% of private sector workers.

When looking at annual wage earnings controlled solely for education – not total compensation, for Minnesota public employees holding a Bachelor’s, earn 28% less than their private counterparts; employees with a Master’s degree earn 34% less, and those with a professional degree (such as doctors and lawyers) earn, on average 41% less then their counterparts.  These numbers change across the board with a 3% rise when looking at total compensation for public sector employees when controlled for education.  This still leaves the public sector employees earning a full quarter less than private sector employees at the low end of the wage disparity.

When taking into account all of the controls; age, experience, education, ethnicity, and gender;, the State workers of Minnesota earn 20.3% less overall than their private sector counterparts, and the Local employees earn 12.6% less overall than their public sector counterparts in annual wages.  Total compensation averages across all levels of employment at the State level earn an average of 16.5% less per year, and at the local level, employees can except to earn 7.7% less across all levels of employment.

In reality, Minnesota workers are not overpaid by any means; in fact they are undercompensated for their work when compared to the private sector.

The second study I would like to take you through is “The Wage Penalty for State and Local Government Employees in New England” from CEPR by Thompson and Schmitt, released in 2010.

Of the Public employees in New England, over half, 55.4% hold at least a 4-year college degree, compared to the 37.9% of the private sector workers.  29.8% of public workers in New England also hold an advanced degree, which is a stark contrast to the 13.3% of private sector workers who hold advanced degrees.  This is partly due to the nature of the State and local government positions in New England, which feature a strong concentration of educational positions.  As for the age and gender, New England holds true to the National standard, 4 years older than private workers and roughly 60% female in the public sector.

Before putting controls in place to aggregate the data, it would appear that state and local workers in New England earn 11% more than workers in the private sector – consistent with the national reports that find higher wages for the public sector.  However, once the data is controlled for education and age, public sector employees in New England earn 6% less than their private sector counterparts.  This does vary from state to state, specifically looking at Massachusetts and Connecticut where the wage penalty with controlled data is only 4% and 2% respectively.

When adding in all the controls: gender, race, and region of residence, to the data controlled for education and age, state and local workers earn 3% less than workers of the same age and education levels in the private sector.  In Massachusetts, that number is 2%, and in Connecticut, it is statistically zero.

When looking at the percentile of wage distribution, at the 40th percentile, government workers in New England face a wage penalty.  This penalty does not appear until the 50th percentile for Massachusetts and Connecticut.  Continuing on this track reveals an overall leveling out of pay when compared to private workers.  At the 60th percentile, state and local workers receive 5% less, at the 70th percentile they receive 7% less, 10% less at the 80th percentile, and a full 13% less at the 90th percentile.

Even with the total compensation, public sector workers across the board still earn an average of 4% less than the private sector when using the controlled data.  As with the actual wage differences, this number increases based on how high the compensation percentile is.

While State and Local employees appear to earn more than the their private sector counterparts to a rather startling percentage, it is, in fact, false.  Public sector employees are older, substantially better educated, and more female heavy than the private sector.  When the data is controlled, although there is a wage premium for the lowest wage earners, there is a severe wage penalty for the mid to highest-wage earners across the country.  There is no real equality in pay between the public and private sectors, leading to this disparity.

One Response to “Public and Private Sector Wage Disparity”
  1. Jueseppi B. says:

    Reblogged this on The ObamaCrat.Com™ and commented:
    Great post Ms. Jennie Sue. Thank you.

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