What a Public Employee Really Costs

It's about a lot more than salaries. We need to do a better job of comparing total costs, both across jurisdictions and across comparable jobs.
September 16, 2014 AT 9:00 AM
By Phil Keisling  |  Contributor
A Senior Fellow the Center for Public Service at Portland State University's Hatfield School of Government

During my time as Oregon's secretary of state, I came to the conclusion that America's two main political parties were imprecisely named. What we really have is an "anti-government" party and an "anti-anti-government" party. This attitudinal divide is especially evident when it comes to the issue of public-employee compensation.

Those in the anti-government camp like to cite studies such as the one published monthly by the federal Bureau of Labor Statistics. "Government Workers Cost More than 45% More than Private Sector Workers," is the headline one commentator recently gave to this study.

But this study simply calculates the average cost of wages and benefits for all private-sector workers and then compares them to all state and local government workers. It's a bit like comparing the Green Bay Packers to the San Antonio Spurs and exclaiming, "Spurs on average 45% taller!" They're different games -- and worlds. After all, government has virtually no minimum-wage fast-food workers, and the private sector is pretty light on firefighters and K-12 teachers.

This more nuanced and interesting recent study by the American Enterprise Institute focuses on comparable jobs (based on its methodology) between the sectors and concludes that there's a surprisingly wide variance between and within the 50 states in terms of public- vs. private-sector compensation.

The anti-anti-government folks have their preferred studies, too. This one, from the Center for State and Local Government Excellence and the National Institute on Retirement Security, compares private- and public-sector compensation costs over 20 years, defining "comparable employees" in a different way. Its conclusion: Most government workers are underpaid.

Inevitably, this public- vs. private-sector framework pulls people into what I'll call the "Goldilocks Swamp," where various partisans assert that public-employee compensation is too much, too little or (rarely) just right. More important, however, this framework fails to give public officials and managers something they truly need: important information and tools to track and manage their total personnel costs, out of inevitably limited resources, for optimum results.

What a particular government worker receives in salary and benefits is significantly different from what a given staff position may cost his or her public employer. A $50,000 salary, for example, generates about $5,000 more in public-employer costs due to Social Security/Medicare taxes and various unemployment and payroll expenses. Employer-paid health-care benefits can cost another $10,000 (or even $20,000) for a typical employee. Pension costs can be just as large -- but even trickier to measure accurately.

In 2012, a research team for our Center for Public Service at Portland State University decided to delve into what we dubbed "Total Employer Costs of Compensation" (TECC). A team of graduate students gathered data from the state of Oregon and 21 city and county jurisdictions in Oregon and southwest Washington. The focus was not on employee groups (costs can differ dramatically depending, for example, on whether the average age of workers in a jurisdiction is 56 or 36). Rather, our study's focus was on common "archetypal" employees that governments hire (e.g., "entry step") or manage ("top step").

The result surprised many, even those within the public sector: On a typical salary of approximately $50,000, we calculated the TECC at approximately $100,000. More than 50 discreet types of compensation-related costs were found among the 13 job titles.

And there's the multiplier effect: When a worker receives even a small raise, other payroll-based costs, such as employer-paid pension contributions, also rise. Add in higher health-insurance premiums and other cost drivers, such as pension-contribution-rate hikes, and a seemingly modest 2 percent salary hike can disguise a 5 percent or even 8 percent rise in the TECC.

And if government revenues increase, but at a slower pace than TECC, what's a logical response? When employees retire or leave, some aren't replaced in order to fund the difference. A better approach would be for jurisdictions to carefully track TECC trends, so they can work with their employees directly around this question: "Since we only have the resources to cover a 4 percent increase in TECC before reducing service levels, help us prioritize which components you value most."

Are higher-than-expected TECCs holding down public-employee numbers? It's difficult to tell, given the variance in individual governments' workforce demographics and revenue situations and in part because most of the data lags up to two years. This report by the Center on Budget and Policy Priorities charts a decrease in state and local government payrolls between 2008 and 2012 of more than 650,000 workers, but it covers a period when pay freezes and even salary reductions (such as through unpaid furlough days) were in play. In recent months, the recovering economy has led many governments, particular local ones, to increase hiring and in some cases to negotiate substantial pay hikes with their unions.

So it's a complex, ever-changing landscape. If elected officials and managers fail to fully understand and grasp their full TECC situations, they certainly risk "flying beyond their fiscal windshield." There's a genuine need for more and better efforts within the public sector to carefully define and then track, year by year, overall TECCs across jurisdictions -- and for jobs that are truly comparable between jurisdictions. Who knows? Maybe that's something that the anti-government and the anti-anti-government folks could agree on.