Beware of Misinformation Campaigns

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The battle over collective bargaining rights in Wisconsin has included claims that public servants in that state are overpaid.  However, employing techniques that economists have used for decades, Jeffrey Keefe finds in an Economic Policy Institute paper that:

On an annual basis, full‐time state and local workers and school employees are undercompensated by 8.2% in Wisconsin, in comparison to otherwise similar private‐sector workers.

And what about here in Pennsylvania?

Just looking at wages, Pennsylvania state employees earn on average 4.5% less than comparable private-sector workers. Local employees earn on average 12.9% less in wages than comparable private-sector workers (PDF of the full report). Better pension and health benefits in the public sector likely narrow this wage disadvantage, but clearly the teachers, firefighters and park rangers who serve the public good in Pennsylvania are not overpaid for their services.

Of course, if you follow or listen to the Commonwealth Foundation's Matthew Brouillette, you hear a very different story as the following tweet illustrates:

I followed the link and indeed did find a table listing state and local pay for public and private workers in five Pennsylvania metropolitan areas.

The Commonwealth Foundation has a history of getting even simple calculations wrong, but taking this table at face value, the underlying data come from the National Compensation Survey conducted by the Bureau of Labor Statistics (BLS).

These data do not take into account human capital differences or any other factors that might influence relative pay; they are simply raw averages. And as the BLS notes:

Compensation cost levels in state and local government should not be directly compared with levels in private industry.  Differences between these sectors stem from factors such as variation in work activities and occupational structures.  Manufacturing and sales, for example, make up a large part of private industry work activities but are rare in state and local government.  Management, professional, and administrative support occupations (including teachers) account for two-thirds of the state and local government workforce, compared with two-fifths of private industry.

To illustrate the BLS's point, consider another difference between the private and public sector — the prevalence of part-time work in the private sector.

Workers employed part-time are paid significantly less than full-time workers, and if there are more part-time workers in the private sector, then they will bring down the private-sector wage relative to the public-sector wage.

The data Brouillette uses mixes both part-time and full-time workers and, thus, skews the public-private pay differences. To illustrate this point, I pulled public and private annual earnings data from the American Community Survey for the same metropolitan areas the Commonwealth Foundation reports.

As the table below illustrates, when you compare full-time, full-year workers in the private sector to the same in the public sector, you find that public-sector workers earn less. (Here is the full table including all the occupations in PDF format.)

Public and Private Sector Mean Annual Earnings for Full-time, Full-year Workers by Region and Occupation
  Management
Metropolitan Area Private State and Local Percent Difference
Pennsylvania $86,919 $70,715 -19%
Philadelphia (MSAD) $104,041 $84,875 -18%
York, PA $82,010 NA  
Pittsburgh-Beaver Valley, PA $84,568 $65,006 -23%
Reading, PA $78,864 NA  
Johnstown, PA $56,326 NA  
  Service
Metropolitan Area Private State and Local Percent Difference
Pennsylvania $55,151 $50,431 -9%
Philadelphia (MSAD) $64,242 $56,612 -12%
York, PA $51,487 $49,961 -3%
Pittsburgh-Beaver Valley $55,213 $49,833 -10%
Reading, PA $48,607 $49,047 1%
Johnstown, PA $43,400 $41,285 -5%
  Sales and Office
Metropolitan Area Private State and Local Percent Difference
Pennsylvania $43,952 $34,635 -21%
Philadelphia (MSAD) $52,619 $38,419 -27%
York, PA $41,449 $32,877 -21%
Pittsburgh-Beaver Valley $43,219 $33,644 -22%
Reading, PA $41,755 NA  
Johnstown, PA $32,993 $28,749 -13%
Note. All figures are in 2009 dollars
Source. Keystone Research Center analysis of the American Community Survey (2005-2009): Steven Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken, Matthew B. Schroeder, and Matthew Sobek. Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010.

This ACS data excludes only part-time workers; a proper comparison of public and private pay levels would also control for differences in age, education, race and gender, among other things.

So the point here, in addition to noting the Commonwealth Foundation's sloppy research methods, is that in order to make a proper comparison of public- and private-sector pay, you have to make apples-to-apples comparisons of workers. The only way to do that is to deploy econometric analysis as was done in Wisconsin and here in Pennsylvania.  When you do that, you find that public sector workers earn less than comparable workers in the private sector.

Or to put it another way, have you ever heard someone say, "I decided to leave the private sector to get rich as a park ranger?" Me neither.

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