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Recession, not overpaid public sector employees to blame for state and local budget woes

A new report from the Center for Economic and Policy Research (CEPR) shows that state and local government workers pay a wage penalty compared to private-sector workers with similar characteristics. Recent media accounts

have suggested that state and local workers earn more than private sector employees, but these analyses fail to control for the fact that public employees are on average older and have substantially more formal education than private sector workers, according to the CEPR report.

Once these systematic differences in the workforces are taken into effect, state and local government employees earn about 4 percent less than private sector workers at the same age and education level, the CEPR finds. The pay penalty is particularly large for the most skilled state and local workers, who trail more than 10 percent behind their private sector counterparts.
The report, "The Wage Penalty for State and Local Government Employees," uses data from the Census Bureau's Current Population Survey (CPS) on the state and local government workforce and the private sector-workforce and finds three important differences:

1. State and local employees are substantially better educated than workers in the private sector --over half of state and local employees have a four-year college degree or more, compared to about 30 percent in the private sector.
2. State and local employees are about four years older than private sector workers.
3. Sixty percent of state and local workers are women compared to less than half of private sector worker.

"We expect and the market confirms that older, better-educated workers earn more than younger workers with less formal education," said John Schmitt, a senior economist at CEPR and author of the study. "When we compare state and local government workers with private sector workers on an apples-to-apples basis, state and local pay actually trails a bit behind pay in the private sector."

The full study contains data on the earnings differential between private and public sector employees based on wage levels, age, and gender as well as the composition of the state and local government workforce on a state-by-state basis through 2009, the latest full year of available data.

For Immediate Release: May 12, 2010
Contact: Alan Barber, (202) 293-5380 x115

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