News Clips

“The compensation of public employees is a hot topic in the wake of the financial crisis. Funded levels of public pension plans declined sharply at the same time that state and local revenues collapsed. As a result, plan sponsors in most states are looking for ways to reduce pension costs. The assumption – either explicit or implied – is that pensions are too generous. Pensions, of course, are just one part of compensation, so any comparison must also consider wages and other benefits. The question of comparability of compensation in the state-local and private sectors was the focus of a recent Issue in Brief. The conclusion was that wages for workers with similar characteristics, education, and experience were higher in the private sector than the public, but benefits for state-local workers roughly offset the wage penalty. Taken as a whole, compensation in the two sectors is roughly comparable.

This brief takes a somewhat different approach to the question of compensation using household data from the Health and Retirement Study. It asks whether, at the end of the day, state-local employees end up with more wealth at retirement than their private sector counterparts. That is, it looks at the wealth of couples where the head is age 65 and tests, controlling for many other factors that could affect the outcome, whether state-local employment has a positive or negative effect on wealth and how that effect is related to tenure in the state-local sector. The discussion proceeds as follows. The first section presents the data and methodology to estimate the impact of state-local employment on wealth at age 65. The second section presents the results. They show that those with state-local employment who spent more than half their career as a public worker – about one-third of the total group – had 11 percent to 18 percent more wealth at age 65 than similar private sector couples. The other two-thirds of those with state-local employment who spent less than half their career as a public worker ended up with less wealth than private sector employees. The third section discusses issues raised by the analysis – the possibility that state-local workers retire early, the role of defined benefit plans, and recent developments that might limit the applicability of the results to today’s environment. The final section concludes that, despite some limitations, the results refute the notion that state-local workers as a group end up a lot richer than their private sector counterparts.”

For the full report, please see below:

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