The Looming Bipartisan Backlash Against Unionized Government

Whenever discussing politically viable policy proposals to improve the quality of life in California, the imperative is to come up with ideas that strongly appeal to moderate centrists, since that is how most Californians would describe themselves. And there are two compelling issues that offer that appeal: making California’s system of K-12 education the best in the world, and restoring financial sustainability to California’s state and local governments.

While these two objectives have broad conceptual appeal, there is a clear choice between two very different sets of policies that claim to accomplish them. The first choice, promoted by public sector unions, is to spend more money. And to do that, their solution is to raise taxes, especially on corporations and wealthy individuals. The problem with that option, of course, is that California already has the highest taxes and most inhospitable business climate in the U.S.

The alternative to throwing more money at California’s troubled system of K-12 education and financially precarious cities and counties is to enact fundamental reforms. And these reforms, despite the fact that each of them arouses relentless, heavily funded opposition from government worker unions, are utterly bipartisan in character. They are practical, they are fair, and they are not ideologically driven.

Education Reforms:

  • Faithfully implement the Vergara Ruling – abolish the union work rules that (1) grant teacher tenure well before new teachers can be properly trained and evaluated, (2) protect incompetent teachers from dismissal, and (3) favor seniority over merit when implementing workforce reductions.
  • Streamline permitting for charter schools. These independent enterprises allow far greater flexibility to teachers and principals, creating laboratories where new best practices can rapidly evolve. Poorly performing charter schools can be shut down, successful ones can be emulated.
  • Enable school choice, so parents can move their students out of bad schools. Start by aggressively promoting and supporting California’s 2010 Open Enrollment Act, that empowers any parent whose child attends one of the state’s 1,000 lowest performing schools to move them to the school of their choice.

Financial Sustainability Reforms:

  • Roll back defined benefit pension formulas to restore viable funding and protect taxpayers. Adopting “triggers” that prospectively lower pension benefit accruals for existing workers and suspend COLAs for retirees, will preserve the defined benefit. One more market downturn will make this choice unavoidable – the sooner this reform is accepted, the more moderate its impact.
  • Reform public employee compensation. The average total compensation for California’s state and local government workers (taking into account all employer paid benefits including retirement benefits and annual paid vacations/holidays) is now more than twice the median compensation for private sector workers. Typically, approximately 70% (or more) of local government budgets are for personnel costs. Public sector compensation needs to be frozen – or even reduced – until the private sector can catch up.
  • Modernize and streamline public agencies. Introduce flexibility to job descriptions and eliminate unnecessary positions. Upgrade and automate information systems.
  • Improve financial management and accountability. The public sector needs to adhere to the same accounting standards that govern the private sector. If anything, public sector reporting should be more standardized, and faster, than what is required in private industry – currently the opposite applies.
  • Eliminate exploitative financing mechanisms: Outlaw capital appreciation bonds, revenue anticipation bonds, and pension obligation bonds, for starters. Nearly all of the “creative” financing instruments being foisted onto relatively unsophisticated city councils are short-term solutions that create long-term financial nightmares.

There are many other fundamental reforms that could rescue California’s K-12 educational system and rescue California’s state and local finances. But the ones listed here would be a very good start. And while there is plenty of room for debate over the particulars of each of these proposed reforms, there is only one powerful interest group that vigorously opposes all of them – public sector unions.

The reality of California’s unacceptable educational results and insolvent cities and counties will compel concerned citizens of all political persuasions to examine these issues over the next several years. And in that process, the inherent conflict between public sector unions and the public interest will become increasingly obvious. To survive, public sector unions will have to accept reforms that challenge their agenda. They will have to accept meaningful pension and compensation reform. They will have to accept smaller, more efficient workforces. They will have to embrace individual accountability and reward individual merit in public education and throughout public agencies. They will have to abandon their symbiotic relationship with financial predators that pump cash into bloated, unionized public agencies on terms that are usurious to taxpayers.

To the extent public sector unions are not willing to attenuate their power and adapt their agenda to the public interest, their recalcitrance will invite a bipartisan fury from a betrayed people. Even in California.

*   *   *

Ed Ring is the executive director of the California Policy Center.

39 replies
  1. Douglas47 says:

    “The average total compensation for California’s state and local government workers (taking into account all employer paid benefits including retirement benefits and annual paid vacations/holidays) is now more than twice the median compensation for private sector workers.”

    I promised to be nice. I will just say this one statement undermines all your credibility.

  2. SkippingDog says:

    Come on, Ed. A false dilemma followed by nothing more than an SPN wishlist isn’t really much substance. I’ve read your other work and you’re far better than such a petty ploy.

  3. Douglas47 says:

    SkippingDog:

    ” I’ve read your other work and you’re far better than such a petty ploy.”

    As Ed says, we’ll have to “agree to disagree” on that.
    …………….
    Ed Ring:

    “Public employee unions are so powerful, moreover, they have cowed the business community into doing whatever they want.”

    “Somebody has to criticize public sector unions, because until they are either eliminated or, at the very least, substantially reduced in power and influence, they are going to continue to undermine our economy, our prosperity, our freedom and our future.”

    Hyperbole. Sounds like unions are antithetical to truth, justice, and the American Way. And motherhood and apple pie.

    Yes, there are some problems with unions, but….
    Like my girlfriend said “I know I’m ugly, but you didn’t LITERALLY chew your arm off!”

    If only we could get rid of unions, ALL our other problems would be solved?

    I smell ulterior motives, and I think Ed wants to chew off MY arm.

  4. Bob38 says:

    Well then Douglas, doesn’t that undermine you credibility? Honestly now. At what point would even you admit that the taxpayer is getting ripped off? How about 5x the median compensation vs private sector workers? That would clearly be taking too much.. right? I assume you “on the system” somehow and really don’t care except for your own pocket book. So who are you kidding?

  5. Tough Love says:

    Why, are you “special” and deserving of a better deal than your Private Sector counterparts …. at Taxpayer expense?

  6. Tough Love says:

    Quoting …”Sounds like unions are antithetical to truth, justice, and the American Way. ”

    They CERTAINLY are….. and are a CANCER inflicted upon society.

  7. Douglas47 says:

    No, Bob,

    Mr. Ring is comparing “average” public sector compensation to average* private sector compensation. “Apples to oranges”. I know that he knows better because I have read his articles explaining the difference.

    There have been numerous studies comparing public sector workers to their ” equivalent ” private sector counterparts, and NONE of those has come anywhere near ” more than twice ” the compensation. Even The Heritage Foundation won’t go there.

    “More than twice the private sector compensation”

    is the territory where even angels fear to tread. Normally only Rush the Intrepid Limbaugh dares to make statements like this. He gets paid whether he’s credible or not.

    note* “average”

    Actually, Mr. Ring is comparing average public sector compensation to “median” private sector compensation. I don’t know why. Usually one would compare average to average, or compare median to median. I don’t know how much of a mathematical difference, but it’s moot anyway, since we’re comparing average apples to median oranges.

  8. Douglas47 says:

    ” I assume you “on the system” somehow”

    Yes, Bob, I on the system. My “own pocket book” is actually irrelevant to the discussion, no kidding. I have been retired for some time, and, so far NO ONE has seriously proposed changes to those already retired.

    Seriously, I recall Captain suggesting reducing all existing pensions over $50,000. Which would not affect me. I suppose another recession like ’07 could affect even the most secure pensions, but then we’d pretty much all be in the same boat.

    I believe there is need to make corrections to most retirement programs based on actual facts and reasonable compromise. “Double the compensation” is counterproductive misinformation. As is ” Public Sector pensions are ROUTINELY 2, 4, (even 6 times for safety workers) greater than their Private Sector counterparts”.

    No kidding.

  9. Ed Ring says:

    Douglas47 – Your point about average vs. median is valid, of course, but you’re over-thinking when you ascribe motives to any cases of inconsistent use of the terms. Sometimes even the most cautiously prepared material will have an inconsistency, for no nefarious reason, merely due to human fallibility.

    In general, it’s more accurate to use median compensation numbers, since often averages are skewed upwards by excessively high numbers for a few people. But in the public sector, we have found that median compensation figures typically EXCEED averages, whereas in the private sector, average compensation figures typically exceed the median. The point: using averages in that case is fine because you are NOT going to overstate the disparity between public and private sector compensation, if anything, using averages will understate the disparity.

    In any case, here are some links to references for the MEDIAN HOUSEHOLD INCOME for Californians:
    http://quickfacts.census.gov/qfd/states/06000.html
    and
    http://www.deptofnumbers.com/income/california/

    As you can see, these sources report recent Californian median household income at $61,400 and $58,328, respectively.

    Here, from a recent study we did, are AVERAGE TOTAL COMPENSATION figures for individuals working for California’s state and local governments:
    http://californiapolicycenter.org/how-much-do-californias-state-city-and-county-workers-really-make/

    From Table 2, you will see, the average total compensation for city workers is $124,058, for county workers it is $102,312, and for state workers it is $100,668.

    To go further you have to try to normalize these numbers. Here are the factors to consider:

    (1) Using averages for government workers instead of medians. This understates the disparity, because medians exceed averages in almost all data we’ve looked at for government workers.

    (2) Using household income for private sector workers vs. individual figures for government workers. This obviously understates the disparity since most households have more than one wage earner.

    (3) Using income for private sector workers vs. total compensation for government workers. This overstates the disparity. But since the average “overhead,” i.e., value of employer paid benefits for the average private sector worker, is undoubtedly less than 20% of income, it does not make up for the understating impact of #2.

    (4) Using ALL worker averages in the private sector number vs. only government worker averages in the government number. This again will understate the disparity, because government workers, who comprise about 20% of California’s total workforce, are skewing upwards the average we are using for private sector workers.

    (5) The value of paid vacation, holidays, sick time and comp time is not included in these numbers. Government workers, on average, receive benefits of this nature that are at least twice as generous as the average private sector worker – self employed people, for example, receive NOTHING in these categories of pay. This as well understates the disparity.

    For these reasons, I am very comfortable with the assertion that government workers, on average – or on median – are making twice as much as private sector workers.

    You may respond with the entirely valid point that we have to look at comparable jobs to make a fair comparison. I agree. And if you do this, I agree that the disparity will narrow. But it is an amazing stretch to suggest that public sector workers are doing tasks that require so much more education and skill than private sector workers that they should make TWICE as much money. I’m not buying it.

    Finally, please note there are nuances to the views expressed in this post and others that you aren’t necessarily recognizing. My concern is primarily with public sector unions. Private sector unions have a legitimate and often vital role to play in American society. But in my opinion public sector unions should be illegal. And yes, I think a lot of the challenges we face trying to improve the solvency and the quality of government will go away, if government unions ceased to exist.

  10. Douglas47 says:

    Ah, where to begin? I tried earlier to post a very short (but complete) response, and got this error message:
    ” Your comment was a bit too short. Please go back and try again.”

    Not a judgment I usually hear. I will copy a post I read from a while back.

    Quoting Juvenal451:

    ” Two: that you are just wrong about the comparison of public sector and private sector total compensation (except at the level which requires no education–sorry for giving them benefits other than Medi-Cal).) 

  11. Douglas47 says:

    Part deux

    My head hurts.

    (1) I don’t care really about average vs median. As I said, in this instance it is moot.

    (2) Meh.

    (3) Actually, according to Biggs and Richwine, average private sector benefits are about 39% of wages.

    According to the Bureau of Labor Statistics, for private sector employees, wages (2014) are 68.8% of employer costs. Benefits are 31.2%.

    (4) Logical fallacy. Assuming that state wages would skew the averages upwards PRESUMES that public wages are higher. Proving that wages are higher based on the assumption that they are higher is circular reasoning.

    AND, of course, you’re still comparing apples to oranges.

    (5) “Paid leave encompasses sick time, vacation days, paid holidays, and personal leave. On average, paid leave is almost precisely the same in the private sector as in state government, with values of 11.11 percent and 11.06 percent of wages respectively.”

    (Biggs and Richwine, American Enterprise Institute)

    According to BLS, paid leave accounts for 7% of private sector compensation, and 7.3% of public sector compensation.

    Note the difference, 11% vs 7%. The first is percent of wages and the second is a percentages of TOTAL compensation. Neither one is “at least twice as generous”

    For these reasons, I am not comfortable with the assertion that government workers, on average – or on median – are making twice as much as private sector workers.

    How DO these misconceptions get started?

  12. Ed Ring says:

    Douglas47:

    (1) Ok. Apparently we agree this point is moot. You brought it up. Moving on…

    (2) I don’t know what “Meh” means.

    (3) Please paste in here the URL to this Biggs and Richwine study. I can’t find it online. But I expect it is a NATIONAL study, and California is by no means typical. The 39% overhead makes no sense. Employer overhead, typically, is 9% for Social Security and Medicare. Then if they provide a matching 401K, it is very unlikely it will go beyond a 3% matching. That’s 12%. If they provide a health insurance benefit, it is unlikely, on average, to exceed $250 to $500 per month, which on an income (average) of probably less than $50K (average) would equate to between 6% and 12%. Best case you get to around 24%, but I think that’s a stretch. California’s millions of self employed private sector workers have “overhead” benefits of ZERO. I’ll stand by my 20% best case average.

    (4) Fair enough. If I’m wrong, and wages are not higher in the public sector, then there is no magnifying effect. If I’m right, there is. No argument there.

    (5) Again, show me the study. I think it dealt with national averages, and it probably didn’t include self-employed people, who constitute a huge and growing percentage of our private sector workforce. Moreover, small businesses, sorry, simply cannot afford to provide, for example, sick leave that accrues without limit, ditto for vacation; they rarely have the means to offer extended paid vacation benefits of 3, 4 or even 5 weeks off to veteran employees (which is normal in public service), they usually offer between 6 and 10 paid holidays, not 12-15, “personal” days are unheard of, and asking for a “9/80” program – the typical institutionalized “comp time” formula – will likely get you fired. That’s reality in small businesses, who have to survive in the global economy, unlike government agencies.

    Please send me the URL to that Biggs and Richwine study. It will be interesting to take a closer look at the scope of their work and the assumptions they made.

  13. Bob38 says:

    Douglas, My head hurts too. Thanks for the response. Your tenacious defense is admirable.

    But, with respect, you are kidding, kidding yourself about the value of a public sector defined benefit pension vs. the private sector counterpart which is the defined contribution 401K plan.

    Use my current plan for a quick and dirty comparison and let me know what I am missing.

    My employer will match my contributions to the tax deferred plan but the maximum they will match is $3,000/year. Lets compare this to a $45,000/year pension. If I work 30 years and contribute enough to get the maximum match, I will have at the end of 30 years $180,000. Now lets say I survive another 20 years before having an aneurism debating public policy on a site like this. To avoid market fluctuation I have it in $$. I have just lived for 20 years on $180,000. If I had been collecting a $45,000/yr pension, check my math, I would have lived the same 20 years on $900,000. $900,000 / $180,000 = 5. So in this case the public pension was 5x the private counterpart.

    This is a simple comparison, but I think it is valid. And again, with respect, you are wrong about this Douglas. It’s a bum deal for the taxpayers in the private sector. My opinion, The answer is 401K with modest match for all new public hires. Leave the old guys alone. In between guys could be converted over based on some formula.

  14. Douglas47 says:

    I posted a link for Ed Ring, above.

    I will repeat, it is useless to discuss pensions outside the concept of “total compensation”.

    Biggs and Richwine have done a detailed comparison state by state. (I will, of course, reserve the right to disagree with SOME of their conclusions.)

    They compare the total compensation of “equivalent” public and private sector workers. They use what they call the human capital concept, accepted by almost all economists.

    I encourage anyone to read the whole study, twicetimes, maybe more.

    I’ll give you the reader’s digest version. In California, on average, state workers make 12% less than private sector counterparts in CASH wages. When adding benefits, they make (from my memory) about 22% more than their private sector peers. If you add Biggs estimation of the value of “job security”, they make 32% more. If you stop there, at the bottom line, as most headline writers are wont to do, shame on you. It’s your loss.

    CALIFORNIA STATE GOVERNMENT WORKERS MAKE THIRTY TWO PERCENT MORE THAN WORKERS IN THE PRIVATE SECTOR!!!!!!!!!!

    Read the whole thing, carefully. (It’s actually called a “working paper”, by the way. Not sure of the significance of that)

    Kudos to Juvenal, from my prior post, who summarized the concept quite succinctly:

    ” you are just wrong about the comparison of public sector and private sector total compensation (except at the level which requires no education–sorry for giving them benefits other than Medi-Cal).) ”

    First, quoting Juvenal again, because I have tried to make this point MANY times:

    “By the way, talking about retirement only, absent a discussion of total compensation, is bogus.”

    Because when Biggs and Richwine compute total compensation, they include ALL costs, including what they call the “true” cost of pensions AND retiree healthcare, discounted at the risk free rate.

    Once you have included these costs, you can FORGET about pensions. They are already included in the computation.

    If you read Biggs and Richwine, you will find that many state employees, PhDs and other professionals, make about 38% less than private sector peers, and 17% less in total compensation. There are MANY state workers who earn less than private sector peers.

    On the other end of the scale, lower educated state workers, as Juvenal said, earn much MORE than in private sector (in TOTAL compensation). They actually make about the same in cash wages, but much more in benefits. And, if you look closely, the biggest advantage is not pension costs, but retiree healthcare. Read the study distinction between percentage (pension) benefits, and fixed price benefits. A worker who earns $3,000 a month may get over $1,000 a month (over 30% of pay) in healthcare ….PLUS a calculated “risk free” $1,000 a month value for RETIREE healthcare. That puts him mathematically way ahead of the private sector worker. As Juvenal put it: “sorry for giving them benefits other than Medi-Cal).”

  15. SDouglas47 says:

    This particular report is for state employees, because local government pay and benefits are too varied to provide meaningful comparisons. And it excludes safety employees, because there is no easily comparable private sector position.

    And no, it does not include the self employed, or those in smaller businesses.

    Biggs and Richwine explain the reason for this in their methodology.

    On another subject, how many times must I “prove I am a human!”?? And, since when does 5 + two NOT equal seven??

  16. Bob38 says:

    Douglas, this is a good paper. I have to study it a bit more esp. regarding comparison of DB vs DC plans. The authors go into detail about the method they use. I will have to look at it closely. On pages 7-8 they do note that “The most obvious result is that, in every state, the value of retirement compensation for state government employees far outstrips the value for private-sector workers employed by larger companies”. This is what my example, which I could easily make more extereme by increasing the length of the obligation due to early retirement and passing on the benefit to a surviving spouse, illustrates clearly. They go on to say “The generosity of public DB pensions is obscured, however, by accounting rules that allow public employers to make low pension contributions on the premise that their investments will earn high returns without risk. This accounting issue, which is extremely important in analyzing public-sector compensation, is discussed in depth in the methodological appendix.”

    So first they say without a doubt that the public DB plans far outstrip the private DC plans. BUT then after running the analysis it doesn’t look like it far outstrips it and this is what you are pointing out. I suspect the analysis is flawed. Maybe I will find something definitive or lacking in the method or maybe I will try to email to Biggs and Richwine at the AEI. Something doesn’t seem right here.

  17. SDouglas47 says:

    Something doesn’t seem right here.

    Of course not. Don’t put too much credence in any one study. As I have said, there are several more liberal studies that will tell us that, even with ALL benefits, public compensation is “roughly equal” to private. One or two even say they are underpaid.

    Grain of salt, all around. One thing I would like to stress is that ALL these studies are comparing the AVERAGE * difference between public and private compensation.

    They disagree on plenty, but one concept they ALL agree on is that at the higher educated and professional levels, the total compensation for public workers is less than in the private sector, and at the lowest levels, public workers earn more than private. The only argument is to the degree.

    And there is absolutely NO serious study that says public sector workers earn twice as much.

  18. SDouglas47 says:

    “Douglas, this is a good paper.”

    Damb right. I love this paper. I also love some of the more liberal studies, for much the same reason….IF you read them all the way through. Even the statistical calculations most of us will never understand.

    Read the methodologies, where they discuss the two or three datasets available for salaries and benefits. Each set has it’s own deficiencies or advantages, and they will effect the outcome in different ways.

    Who do you compare? Certainly not an overall average. That’s apples and oranges and COMPLETELY discredited. (Although you will often see articles try to do this still. These figures come out on the BLS ECEC news release EVERY month, first page, above the fold:

    ” Total employer compensation costs for private industry workers averaged $29.99 per hour worked in March 2014. Total employer compensation costs for state and local government workers averaged $43.10 per hour worked in March 2014.”

    You see a “journalist” quote that and tell you “public workers make 43% more than private”, you know he’s either lazy, stupid, or lying. If you just read through to page four they TELL you these numbers cannot be directly compared. They repeat this on page four EVERY month.

    You can compare compensation by job description, with obvious problems, or as most do, with “human capital” comparisons. Also not perfect.

    My personal opinion. (Tough Love has been waiting for this)

    You might as well say “Public sector workers, on average, earn twelve percent more than private sector…..with a twenty three percent margin of error.”

    Like nailing jello to a damb tree.

  19. Tough Love says:

    Quoting … ” Public Sector pensions are ROUTINELY 2, 4, (even 6 times for safety workers) greater than their Private Sector counterparts”

    Actually I said …”The value at retirement of Public Sector pensions are ROUTINELY 2, 4, (even 6 times for safety workers) greater than their Private Sector counterparts”.

    This is indeed an accurate statement because “value” encompasses not just the greater Public Sector monthly pension payouts (due to the much higher PUBLIC Sector pension FORMULAS), but ALSO the encompasses the MUCH richer PUBLIC Sector pension PROVISIONS (such as very young full/unreduced retirement ages, the inclusion of COLA increases that almost no Private Sector Plans include, and much much more liberal definitions of “pensionable compensation”).

    The fact that you are either refuse to accept that, or are incapable of following the mathematics that demonstrates it …. doesn’t refute it.

  20. Douglas47 says:

    Actually, it was a direct quote, as the quotation marks signify. A cut and paste. Much like this one:

    TL: “Currently, Civil Servants ROUTINELY get pensions 2, 4, even 6 times greater than their Private Sector counterparts …. with Private Sector taxpayers paying for 80-90% of Civil Servant pensions. How utterly ridiculous ! ”
    …………………..
    TL:…..” This is indeed an accurate statement……..”

    I am not arguing that your statement is inaccurate, only that it is irrelevant.

    Quoting Juvenal again, because I have tried to make this point MANY times:

    “By the way, talking about retirement only, absent a discussion of total compensation, is bogus.”
    ………………….
    If, as part of his total compensation, a worker receives a larger share of compensation in the form of pension contributions, rather than immediate cash, his pension WILL be greater.

    If two equivalent workers have that SAME total compensation, but worker B has nineteen percent diverted to pension investments, and worker A has only nine percent, guess who will receive the larger pension? With the same total compensation, worker B will have ten percent less spendable income his entire working life than A, and will have a higher pension for the remainder of his life. Twicetimes higher. Maybe more.

    From the SAME total compensation.

    “The fact that you are either refuse to accept that, or are incapable of following the mathematics that demonstrates it …. doesn’t refute it.”
    ………………….
    Worker B appears to be a very smart guy. Probably quite handsome, also. A credit to his community and an asset to his nation.

  21. Douglas47 says:

    GIGO:

    “What this shows is that a Private Sector worker (with a TYPICAL DB pension formula and provisions) would need to have a final average salary of $512,812 to generate a pension from his/her employer with the SAME $1.8 Million “value” as the TYPICAL Safety worker pension …. or $512,822/$111,111 = 4.62 times the Safety worker’s salary.”

    ……….
    FAS = $138,462/(30 x 0.0125 x 0.72) = $512,822

    We can “follow the math”, but the math is moot.

    The important factor is that two roughly equivalent workers receive roughly equal total compensation, not how that compensation is allotted between present and future income.

    “If you don’t eat your meat, you can’t have any pudding, how can you have any pudding if you don’t eat your meat!”

  22. Tough Love says:

    Quoting … “If, as part of his total compensation, a worker receives a larger share of compensation in the form of pension contributions, rather than immediate cash, his pension WILL be greater.”

    Well your contention means that in COMPARABLE jobs Public Sector workers earn less i “cash pay” (because even you agree that Public Sector pensions & benefits are FAR greater).

    Sure there are some high level occupations (e.g., doctors, lawyers, certain IT professions) where “cash pay” in the Private Sector in marginally greater, but in the VAST majority of occupation “cash pay” alone is equal to or greater in the PUBLIC Sector. And for this VAST MAJORITY of occupations, there is simply ZERO justification for ANY greater pensions or better benefits let alone the MULTIPLE GREATER pension & benefits that exist today.

    That must end, and not just for new workers, but for the future service of all CURRENT workers.

  23. Douglas47 says:

    American Enterprise Institute for Public Policy Institute:

    “We use data from the Census Bureau’s American Community Survey for the years 2009 through 2012.
    Our analysis finds that the average state pays salaries around 12 percent below those paid by large private sector employers for similarly skilled workers.”

    Average. ….12 percent less
    ……………..
    TL:

    ” Sure there are some high level occupations (e.g., doctors, lawyers, certain IT professions) where “cash pay” in the Private Sector in marginally greater, but in the VAST majority of occupation “cash pay” alone is equal to or greater in the PUBLIC Sector. ”
    …………
    “some”? ” marginally greater”? You a trip! AVERAGE is twelve percent less.

    “Individuals with a high school diploma or less receive salaries that are VERY CLOSE to those paid in the private sector. All the other educational attainments, however, appear to receive LOWER AVERAGE SALARIES in state government than in the private sector, with the largest salary penalty of 37 percent received by state government employees with professional degrees.”

    1). Capitals are mine.
    2). 37 percent “cash pay” penalty is not “marginal”.
    ………..
    Total compensation:

    “professional degree holders a penalty of 17 percent: and PhDs a penalty of 18 percent.”

    “Nevertheless, a significant total compensation penalty remains for both professional and doctoral degree holders. It is worth considering how government may continue to attract better educated employees despite a seeming compensation penalty.”

    1). “significant total compensation penalty”
    2). NOT “marginally less” cash pay.
    3). Not just “some high level occupations”
    4). “It is worth considering how government may continue to attract better educated employees”

  24. Douglas47 says:

    Apparently you are ignoring the whole point.

    “By the way, talking about retirement only, absent a discussion of total compensation, is bogus.”
    …………………………..
    When Biggs and Richwine (and other economists) compute the total compensation of public or private sector, they INCLUDE the costs of the pensions.

    For private sector employees with a DC plan, the computation is simple. Total compensation is what is paid during working years. What the employee does with his investments after retirement is irrelevant.

    For DB plans, Biggs and Richwine go to great lengths to determine the calculated benefits and compute what they call the “true cost” of those benefits, both pension and retiree health care, calculated at the risk free rate. Again, what happens after retirement is IRRELEVANT!! His “true cost” has already been factored in.

    If they compare, for example, a private sector and a public sector registered engineer, and determine their total compensation is roughly equal. It is entirely possible, and likely, that the private sector worker had GREATER take home pay most of his career, and during his retirement, had social security and, typically a 401(k) balance of $200,000 or less to try to stretch out his remaining years.

    The public sector engineer, on the other hand, has LESS take home pay while working, and a pension typically sixty to eighty percent of final salary.

    Their total compensation is nearly equal. Their lifetime income is nearly equal. The private sector worker takes a larger portion of his income earlier, with a smaller portion in retirement.

    The public sector worker takes less when working, and more in retirement.

    Not greedy, not egregious, not ripping of the taxpayer.
    ..,.,……

    “4.62 times the Safety worker’s salary.” is irrelevant.

  25. Douglas47 says:

    TL,

    Apparently you are ignoring the whole point.

    “By the way, talking about retirement only, absent a discussion of total compensation, is bogus.”
    …………………………..
    When Biggs and Richwine (and other economists) compute the total compensation of public or private sector, they INCLUDE the costs of the pensions.

    For private sector employees with a DC plan, the computation is simple. Total compensation is what is paid during working years. What the employee does with his investments after retirement is irrelevant.

    For DB plans, Biggs and Richwine go to great lengths to determine the calculated benefits and compute what they call the “true cost” of those benefits, both pension and retiree health care, calculated at the risk free rate. Again, what happens after retirement is IRRELEVANT!! His “true cost” has already been factored in.

    If they compare, for example, a private sector and a public sector registered engineer, and determine their total compensation is roughly equal. It is entirely possible, and likely, that the private sector worker had GREATER take home pay most of his career, and during his retirement, had social security and, typically a 401(k) balance of $200,000 or less to try to stretch out his remaining years.

    The public sector engineer, on the other hand, has LESS take home pay while working, and a pension typically sixty to eighty percent of final salary.

    Their total compensation is nearly equal. Their lifetime income is nearly equal. The private sector worker takes a larger portion of his income earlier, with a smaller portion in retirement.

    The public sector worker takes less when working, and more in retirement.

    Not greedy, not egregious, not ripping of the taxpayer.

    “4.62 times the Safety worker’s salary.”
    Is irrelevant

  26. Douglas47 says:

    Bob38,

    I was just glancing through your numbers again, and I think I can get you close to a government pension.

    First, I’ll need to make an assumption…my wife has a 401(k) and her employer will match 50% of what she contributes up to a maximum of 3% of income. She could contribute MORE, but they will still match only 3%. To get their 3%, she has to contribute 6%, minimum.

    Now the assumption…you make $100,000 a year.

    Your employer contributes 3% on your behalf.

    You kick in 6%, as my wife had to, to get the 3%. In 30 yrs., disregarding interest (and COLAs) you will have $270,000. (Remember, in California most state workers contribute at least 8%) You’re still ahead in take home pay.

    From the AEI study, we know the average state worker earns 12% less CASH PAY than an equivalent private sector worker, so you can kick in ANOTHER 8.5%, and STILL have more take home pay than the state employee.

    That brings you to the $17,500 IRS max, and to a $525,000 balance in 30 years.

    You said 30 years, so assume you started at your job at 30 years old. Once you turn 50, you can add another $3,500 a year, for ten years(IRS catch up is $5,500 max), that will bring your take home pay down to the 12% difference the state worker earns, and it brings your TOTAL savings to……….

    $525,000 + $350,000 = $875,000

    You’re still slightly ahead of the state worker because in step one, you contributed 6% instead of the minimum 8% state workers pay ( my contribution was 10%, before I retired).
    ……………………..
    Now, as you said, this is extremely “down and dirty”. Without inflation and earnings, these numbers are useless, BUT……isn’t it coincidental how you can retire at 60 with almost your $900,000 pension value while STILL taking home about the same (slightly more, in this hypothetical) as an ” equivalent ” state worker?

    It is a rough example of what I have been trying to convince TL. You CANNOT compare pensions without factoring in total compensation. You can not.

    In this example, the private sector worker and the public sector worker have nearly equal take home pay and nearly equal pensions.

    In the example as you stated it, where the employer contributes 3% and you contribute 3%, (you still make a hypothetical $100k). Your take home is $97,000, and you have only $180,000 to retire.

    The state worker earns $88,000 a year (12% wage difference) minus 8% pension deduction for a take home of $81,000. Compare that to the $97,000 of the private sector EQUIVALENT.

    That’s why publc sector guy gets a pension valued at much more than your $180,000. Make less NOW so you can make more in retirement.

    That’s why they calls it “deferred compensation.” Instead of “generational theft” or “collusion”, “ponzi scheme”, “unadulterated greed”,

  27. Ed Ring says:

    Douglas47 – you are nothing if not persistent. Your 18 comments constitute more than half the comments on this post. While you are not likely to be persuaded by any counterarguments, for the sake of anyone else who may have waded all the way through to this point, here are some considerations worth taking into account:

    (1) Biggs and Richwine did not limit their study to California. They surveyed all the states and developed national figures. California pays their state and local government workers more than most other states, so the averages developed by Biggs and Richwine are not representative of what’s happening in California.

    (2) Equally if not more significant, the Biggs/Richwine study only looked at state worker compensation. In California, local government workers outnumber state workers by about four to one, and everything we’ve seen shows that California’s local government workers make significantly more than California’s state workers.

    (3) The biggest assumption Biggs/Richwine made, however, was to exclude all private sector data with the exception of people working for very large corporations. This is flawed in at least two fundamental ways: First, this ignores the reality of California’s millions of highly skilled, highly educated individuals in the private sector who work for start-ups, operate or work in small businesses, or are self-employed. These individuals pay taxes, work much longer hours with fewer benefits, and do jobs that require every bit of their education and skill. Second, there simply aren’t that many corporate jobs of the type Biggs and Richwine examined available to workers. This is another reason why generalizing about public vs. private pay when only using large corporate examples of private pay, representing maybe 20% of the private sector workforce, doesn’t really tell us much.

    (4) As I pointed out in my two earlier comments on this post, we are not suggesting that – accounting for all education and skill – that public employees still make twice as much as private employees. But when you do make that adjustment, which I’m sure you will admit is a very subjective exercise – my point is that the difference is still huge. You are arguing it is pretty much a wash, lower pay in exchange for better pensions. I’m not buying it. The data we’ve got pretty much proves that the raw data, not adjusting for education and marketable skills, is two-to-one. Education and skills are not going to move that to parity. Not even close.

    As for your back and forth with Tough Love and others on the question of pensions, it is hard to believe you’re serious. If these pensions are so affordable and so reasonable, why are taxpayers being asked to pay more every year to shore up these funds? If the only people critical of pensions are “right wing ideologues” who are making up numbers, why not agree to take benefit cuts if these funds can’t deliver the returns they promised, years ago, but failed to deliver?

    An independent contractor, and there’s more of us every day, Douglas47, is required to turn over 12.4% of every penny they make to the Social Security Administration. In return for that, they can expect a “pension” of about $15,000 per year, after 45+ years of full time work, i.e., starting at age 67. The average non-safety public employee in California who retires after 30 years can expect an average pension of over $60,000 per year, by age 62 if not much sooner. And NONE of them are kicking in 12.4% per year.

    Our organization is has not hopped onto the 401K bandwagon, although that is a solution that may become inevitable. But pension funds are in trouble, and one more market correction will crush them financially. When that happens, an equitable solution would be to put every American, public or private, onto Social Security. Whatever set of benefit formulas and incentives Social Security offers private sector workers can be the exact same thing they offer public employees. That would go a long way towards repairing the rift that unionized government has ripped into the fabric of this nation.

  28. SDouglas47 says:

    I’m trying to help you out here, Ed. But I have a book I have to finish and get back to the library. Apparently you’ll not change your mind, either, but maybe some of the other readers will get something out of it. I’ll see what I can whip up tomorrow.

  29. Tough Love says:

    Ed, you paragraph #(4) sums it up pretty well re where Douglas47 stands …. I stopped responding as it seems pointless (like talking to a wall).

    But we should add to the points made when comparing Public/Private Sector workers with equal education…..

    In Public Sector occupations (especially teachers) more credits or a new degree contractual increases your pay … even if that incremental education is not related or only marginally related to your work responsibilities, and even if you suck at your job.

    In the Private Sector, proven performance (in quality and quantity) brings greater pay, NOT additional college credits or degrees. I personally have witnessed several associates acquire Masters degrees w/o any additional pay, and interestingly, they don’t expect to w/o PROVING they have earned it. If only such mindset were transferable to Public Sector workers.

  30. SDouglas47 says:

    “Backlash”

    Here’s me being helpful again. (I’m a giver)

    Union “backlash” can go both ways. May I say, statements such as these may be counterproductive to your cause?
    ………………..
    ” Tough Love on September 2, 2014 at 2:40 pm

    Quoting …”Barnett suggested that the termination notice contain “whereas” clauses stating that pensions are an unsustainable and unjustified taxpayer burden, a breach of fiduciary duty to city residents and the result of unconstrained public employee union lobbying.”

    That is one of the clearest and most accurate descriptions of the issue I have seen in quite some time.

    BRAVO Mr. Mayor !”

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published.