Public Sector Unions and the Rising Costs of Employee Compensation

By Edwards, Chris | The Cato Journal, Winter 2010 | Go to article overview

Public Sector Unions and the Rising Costs of Employee Compensation


Edwards, Chris, The Cato Journal


Public sector compensation is becoming a high-profile policy issue. While private sector wages and benefits have stagnated during the recession, many governments continue to increase compensation for public sector workers. At the same time, there are growing concerns about huge underfunding in public sector retirement plans across the nation.

This article examines the compensation of state and local workers, who account for 20 million of the 23 million civilian government workers in the United States. (1) State and local workers include teachers, college instructors, police officers, health care administrators, and many other occupational groups.

Examining state and local compensation is important because it represents a major portion of the overall U.S. economy. In 2008, the total cost of wages and benefits for state and local workers was $1.1 trillion, which was half of the $2.2 trillion in total spending by state and local governments. (2) Compensation costs are expected to rise rapidly in coming years due to growing pension and health care costs.

This study begins with a look at trends in state and local government compensation since 1950. Then it compares compensation levels in the public and private sectors using data for 2008, Note that I will use the phrase "public sector" to refer to state and local governments and not the federal government, which is not examined here.

Next, the growth of labor unions in the public sector workforce is discussed. In 2008, 39 percent of state and local workers were members of unions, but that percentage varies widely by state as a result of differences in state legislation on collective bargaining and other aspects of union organization.

Does the presence of labor unions in the public sector increase the costs of public sector compensation? I use state-level data on public sector compensation and union shares in an OLS regression to explore this question. I find that public sector unions push up the costs of the public sector workforce in the United States by about 8 percent, on average, but the increase would be more in states with highly unionized public sectors such as California.

The final section discusses the coming fiscal crisis in state and local budgets. Many state and local governments have huge unfunded obligations in worker retirement plans, and they will need to make major reforms to their budgets in the years ahead. However, enacting reforms will be a significant challenge given the resistance to change in the politically active and unionized workforces of state and local governments.

Growth in Public Sector Compensation

The U.S. Bureau of Economic Analysis publishes time series data on employment and compensation by industry. (3) Based on these data, Figure 1 shows average compensation levels in the public and private sectors since 1950. Compensation includes wages and benefits, such as the costs of health care and pensions. The data are in constant 2008 dollars, deflated by the consumer price index.

Between 1950 and about 1980, average compensation in the public and private sectors moved in lockstep. But 'after 1980, public sector compensation growth began to outpace private sector compensation growth, and by the mid-1990s public sector workers had a substantial pay advantage. In the boom years of the late-1990s, private sector workers closed the gap a bit, but public sector pay moved ahead again in the 2000s.

[FIGURE 1 OMITTED]

The public sector pay advantage is most pronounced in benefits. Bureau of Economic Analysis data show that average compensation in the private sector was $59,909 in 2008, including $50,028 in wages and $9,881 in benefits. Average compensation in the public sector was $67,812, including $52,051 in wages and $15,761 in benefits.

The BEA data break down the public sector workforce into three groups: education, public enterprises (such as government liquor stores), and all other government functions. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Public Sector Unions and the Rising Costs of Employee Compensation
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.