Fruit Salad, Anyone?

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The Governor's speechwriter appears to love apples to pears comparisons, or maybe bananas to oranges.  But nothing so plain as apples to apples.

I'm referring to the following quote from Governor Corbett’s budget address last week:

Here are some very serious numbers. Since June 2004, state government salaries have risen from a median average of $39,037 to $45,105. By comparison, the median average earnings for a Pennsylvanian working in a for-profit business as a wage or salary employee stood at $32,239. And since the recession began, the state’s union employees have seen annual increases. The private sector – the taxpayers – has seen its average income stagnate.

Lower down I'll explain why the public worker to private worker comparison is not "apples to apples." But before I do that, a question. What exactly is a median average? Perhaps the English majors purported to have written the Governor’s speech could get a math major as a proofreader.

(READ THIS PARENTHESIS AT YOUR OWN RISK: For any of you English majors out there, the “average” and the “median” are two alternative measures of the “central tendency” of a group of numbers: the average of X numbers is the sum of all X numbers divided by X; the median is the number right in the middle if you order the numbers from lowest to highest.)

More important than poking fun at the phrase "median average" is to recognize there's some more serious deception going on here.  The quote leaves two impressions: (1) public-sector workers have seen their wages go up recently (“annual increases”) while private-sector workers have not (i.e., they have seen their “average income stagnate”); and (2) public-sector workers make much higher wages than private-sector workers ($45,105 versus $32,239).

It turns out the first claim is false and the second claim is a misleading "apples to bananas" comparison.

To figure out what’s going on here is not easy so bear with me on the detective work. One problem is that there’s nary a source in sight (a cite for sore eyes?) in the Governor’s speech. So I looked at the standard data sources to compare public and private wages in Pennsylvania.

Let’s deal first with impression (1): that pay has increased a lot for state workers (from $39,037 to $45,105 or by about $6,000), while private-sector incomes have “stagnated.” (Since the Governor only lists one private-sector earnings figure of $32,239, you can’t compare a numerical increase based on the speech.)

One possible source for these numbers is the American Community Survey (ACS), a monthly survey of households that collects data on earnings for both public- and private-sector workers.  Presented below in Table 1 are median earnings in 2005 and 2009 from the ACS for state government workers and workers in the private sector (see also Table 2 which provides data on median earnings from 2004 to 2009 for full-time, year round workers).

Please note that unless otherwise specified, none of the numbers below have been adjusted for inflation in order to aid in comparing these figures to numbers cited in Governor Corbett's speech.

The first thing to note is that median earnings for state government workers over this period have increased by $2,500, or 6.7% — NOT by $6,000, as Governor Corbett claims. (That is, of course, if he means median earnings when he says “median average earnings”). The second thing to note is that median earnings for people working in for-profit businesses rose over the same period by $2,000, or 6.8%.

If by “median average,” Governor Corbett meant average, the quoted increase of $6,000 in earnings for state workers since 2004 might come from the Quarterly Census of Employment and Wages (QCEW). The QCEW only has data on average (not median) annual pay. It does indeed have average earnings for state government workers rising by about $6,000, or 13%, between 2004 and 2009. But here’s the rub: for all private-sector
workers (profit and not for profit), average earnings over this period increased by 6,329, or 17% (here is Table 3 with the full data from the QCEW).

Using comparable numbers from either data source fails to support the implication in Governor Corbett’s speech that compensation in the public sector is growing substantially faster than in the private sector.

Now to claim number (2) — that state workers (now earning $45,205) make a lot more than private-sector workers (now earning $32,239). Overall, Table 1 provides additional documentation of this point: state workers do earn more than privatesector workers when you don't take into account that the state workforce is comprised of a larger number of high-skill occupations relative to the private sector.

But when you compare average annual earnings by educational attainment for state government workers and private-sector workers, you come away with a very different impression. In the following table (Table 4), I have pooled ACS data for 2005 to 2009 to examine average annual pay for state workers and private-sector workers (profit and not for profit) by educational attainment.

As you can see, workers in the private sector with a college degree do much better in terms of annual pay than state workers with a college degree.

So how come overall pay for state workers in Table 1 is higher than for private-sector workers?

The reason overall pay figures for the state workforce are higher than overall pay figures for the private-sector workforce is because there are a lot more occupations in the public sector that rely on people with a college degree.  Even though college-educated workers in the state workforce earn less than comparable workers in the private sector, the larger share of college-educated workers in the state workforce than in the private sector drives overall pay for state workers above overall pay for private-sector workers.

To drive this point home, let's ask what would average annual pay be in the private sector, if the private sector were as educated as the state workforce? The answer is $58,211 or about $8,000 more a year in pay than what is currently earned in the public sector. 

My calculations based on Table 4 are simple back-of-the-envelope estimates. More sophisticated econometric methods, which control for a wide range of characteristics that influence earnings, show that Pennsylvania state employees earn on average 4.5% less than comparable private-sector workers. Better pension and health benefits for state workers narrow the public-private gap for overall compensation.

In sum, when you do apples-to-apples comparisons, public-sector workers do not earn more than comparable private-sector ones. In addition, Pennsylvania public-sector wages have not risen faster than in the private sector over the last half decade.

Most Pennsylvania public-sector workers do a great job, with many of them giving up much higher potential earnings because of their commitment to public service. We look forward to Governor Corbett distinguishing himself further from the likes of Wisconsin’s Governor Scott Walker by openly recognizing the value and hard work of Commonwealth employees.


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