Employees of state and local government earn an average of 11 percent and 12 percent less, respectively, than comparable private sector employees, according to a study released Wednesday. Commissioned by the Center for State and Local Government Excellence (SLGE) and the National Institute on Retirement Security (NIRS), "Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years" shows that the pay gap between public and private sector employees has widened in recent years.

The report's authors, University of Wisconsin-Milwaukee Department of Economics associate professors Keith Bender and John Heywood, analyzed data from the U.S. Bureau of Labor Statistics to conduct the study. Among the findings:

• Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23 percent of private sector employees have completed college as compared to about 48 percent in the public sector.
• Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants, such as education and work experience. During the last 15 years, the pay gap has grown. Earnings for state and local workers have generally declined relative to comparable private sector employees.
• The pattern of declining relative earnings remains true in most of the large states examined in the study, although there is some state level variation.
• Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8 percent lower for state employees and 7.4 percent lower for local employees than for comparable private sector employees.

"The picture is clear. In an apples-to-apples comparison, state and local government employees receive less compensation than their private sector counterparts," Bender said. "These public sector employees earn less than they would earn if they took their skills to the private sector."

"Jobs in state and local governments consist disproportionately of occupations that demand more education and skills," Heywood said. "Indeed, accounting for these differences is critical in understanding compensation patterns."

The study offers one possible reason for the findings of an SLGE survey released earlier this year in which state and local governments reported having trouble filling positions. "Hiring managers told us that despite the economy, they find it difficult to fill vacancies for highly skilled positions, such as engineering, environmental sciences, information technology and healthcare professionals. The compensation gap may have something to do with this," said Elizabeth Kellar, SLGE president and chief executive officer.

"For a long time, there has been a compensation trade-off in public sector jobs — better benefits come with lower pay as compared with private sector jobs. This study tells us that is still true today," said Beth Almeida, NIRS executive director. "What's striking is that on a total compensation basis — looking at pay and benefits — employees of state and local government still earn less than their private sector counterparts."

Download the full report.

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