Benefit Cost Comparisons Between State and Local Governments and Private-Sector Employers,

Facts from EBRI: The History of Retirement Plans.

April 2005, Vol. 26, No. 4
Paperback, 12 pp.
PDF, 351 kb
Employee Benefit Research Institute, 2005

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Executive Summary

Benefit Cost Comparisons Between State and Local Governments
and Private-Sector Employers


The recent proposal by California Gov. Arnold Schwarzenegger (R) to end that state’s public employee defined benefit pension plan has focused attention on the disparate compensation costs between public-sector workers and private-sector employees. This article examines some of the causes of the differences in total compensation costs between state and local government employers and private-sector employers, using various datasets.

Total Compensation Costs: According to the most recent data, overall total compensation costs were 46 percent higher among state and local government employers ($34.72 per hour worked) than among private-sector employers ($23.76 per hour worked). This comparison does not distinguish the substantial differences that exist between positions in the private and public sectors, such as required levels of education and knowledge; physical risk; skills; and the public’s compelling interest in ensuring that certain public-sector positions be filled with qualified, career-oriented professionals.

Wage/Salaries and Benefits: Total compensation costs consist of two major categories: wages and salaries and employee benefits. For both of these categories, state and local government employers’ costs were higher than those of private-sector employers: 40 percent higher for wages and salaries and 60 percent higher for employee benefits.

Workforce Comparisons
: One of the primary reasons for differences in total compensation costs between state and local government employers and private-sector employers is the composition of their respective work forces. A large percentage of state and local government employees are concentrated in service occupations such as teachers, police, and firefighters, which require higher levels of education or involve greater physical risk and therefore tend to be more highly paid; by comparison, the largest percentages of private-sector workers are among sales and office occupations, which require less education, are more sedentary, and therefore tend to be paid less. Because state and local government workers are highly concentrated in the education sector (teachers and university professors), they have more employees with high levels of education, unionization rates, and high compensation costs.

Benefits Participation
: One of the primary reasons for the difference in benefit costs is that state and local government employees are more likely than their private-sector counterparts to participate in employee benefit programs. Full-time state and local government employees had far higher participation rates in both health insurance and retirement benefits programs than did their counterparts in the private sector.