Compensatory Damages? Comparing Public and Private Sector Employee Compensation

Public sector worker protests against benefits cutsFor years, it was a truism so well understood it could be etched in stone: A government job was one where the pay wasn’t all that great … but the benefits were wonderful and there was good job security.

The accepted tradeoff was between receiving lower salary compensation in the public sector in exchange for job security and good benefits. Lower reward, perhaps … but also lower risk.

Over the past decade, however, there’s a growing perception that this balance has shifted almost entirely in the direction of public sector workers. And now we have the data to prove it.

A recently released analysis by the Congressional Budget Office reports that federal government employees receive significantly higher total compensation than private sector workers with the same level of education and/or experience.

The CBO analysis found that the average salary for federal workers runs approximately 2% higher than similar jobs in the private sector. So the private sector salary premium seen historically no longer exists.

Benefits are another key factor. And in fact, the value of federal employee benefits now exceeds private sector programs by a whopping 48%. Taken together, total compensation for federal workers exceeds their like counterparts in the private sector by 16%.

That isn’t chump change. With federal employee compensation running $200 billion per year, a 16% premium in compensation represents a beaucoup bucks, actually.

But even with these stark statistics, we continue to hear complaints about the plight of public sector employees. To see how off-tone this sounds, compare the new CBO report with the continuing claims of the federal Office of Personnel Management that federal workers are underpaid by 26% compared to private sector positions.

That contention goes all the way back to the early 1990s, but it’s still quoted as if it’s Gospel truth some 20+ years later.

Really? Which one of these two studies do you believe more?

With the beating that companies in the private sector have had to take in order to remain competitive in a down economy – indeed, even to survive – the notion that federal workers’ average total compensation is lower than comparable private sector jobs doesn’t pass the snicker test.

And what about state and local public sector jobs? The studies may not be as comprehensive, but the evidence looks very much the same. Anecdotally, I know that every time salaries and benefit packages earned by public officials in my state and/or local jurisdictions are published, I hear howls of protest from people who feel that the compensation is way out of line with the rest of the market.

Public employee unions like to talk a lot about fairness. And at the end of the day, it is about fairness: In an economy where business has been battered, unemployment and underemployment continues to be rampant, and many employees who have managed to hold on to their jobs have had to endure big sacrifices in salary cuts, benefit cuts and increased co-pays … for public sector employees to expect the world to stand still for them and them alone seems anything but fair.

Consider the fact that a significant number of local governments – and even some states – are facing huge looming pension payouts and other financial obligations that threaten to bankrupt them. In such an environment, it’s unrealistic for public sector advocacy groups to think they can hold jurisdictions to 25-year-old commitments that were based on actuarial and tax revenue assumptions that are no longer valid.

A couple of maxims are in order: Times change. You can’t get blood out of a turnip. And yes, we can get ourselves out of this situation. But people are going to have to be flexible in their thinking for the effort to succeed.

USPS: Yes, it’s in the news again.

It seems the U.S. Postal Service is never out of the news – and the news is almost always depressing or infuriating.

And last week, the USPS made the headlines not once but three times. The first item was a financial report – numbingly repetitive by now – that the agency lost nearly $1.6 billion in the last quarter.

Like a bad movie that never seems to end, the USPS is on track to lose as much or more money in FY 2010 than it dropped in 2009. Meanwhile, the Postal Service continues to seek ways to reduce expenses by cutting back on the services it provides. Look for Saturday mail delivery to be a thing of the past by 2013.

Then, later in the week came news that Robert Bernstock, the USPS’s former president of mailing and shipping services, was found to have improperly used his position to conduct outside business, including helping award six non-competitive contracts to several of his former business pals. The Office of Inspector General, which investigated his activities from July 2009 onward, also concluded that Bernstock “used his subordinate staff to conduct work that supported his outside business activities.”

Bernstock resigned his position on June 4.

Hard on the heels of the Bernstock revelations came the nice little news nuggett that the USPS has been overcharged in excess of $50 billion for payments to the Civil Service Retirement System (CSRS) – payments that were made over a 37-year period from 1972 to 2009. The Office of Personnel Management, which is responsible for calculating the CSRS pension liability, is now reconsidering its calculation of the USPS’s pension assets in light of the report.

While it’s nice to see that the CSRS error is being remedied, it’s pretty amazing that something so inaccurate as this could have gone undetected for the better part of 40 years!

And what’s the USPS doing for an encore this week? It’s filed for an exigent postal rate increases ranging from 5% on first class mail to a whopping 23% on parcels. Isn’t that wonderful: reward inefficiency by getting a price increase.

This quartet of USPS news items over the past week embodies everything that concerns those who are looking at the prospects of increased government involvement in health care with dread: operational inefficiency … financial mismanagement … corruption and backroom dealing at the highest levels.

It’s also a cautionary tale for those who blithely believe that if we could only move this or that business activity away from the “money-grubbing private sector” and give it to a government entity instead … all of our problems would be solved.

Uh-huh.