This paper investigates whether Minnesota public employees are overpaid at the expense of the state’s taxpayers. The research is timely. Legislative battles are under way in several state capitals in the Midwest, as governors seeking to close state budget gaps propose restricting not only government workers’ wages and benefits but their collective bargaining rights. Proponents of such measures argue that public employees are overpaid compared with workers in the private sector. Indeed, former Minnesota Gov. Tim Pawlenty, who has been vocally supporting such measures, boasted in the Wall Street Journal (December 13, 2010) that he fought public employee unions in the state and prevailed in a 44-day transit strike in 2005, reducing benefits for incumbent workers and all new hires. He touted as a success of his government frozen wages and new requirements that all public employees contribute more to their pensions. According to Pawlenty, public employees are overcompensated and pampered compared with private sector workers and “unionized public employees are making more money, receiving more generous benefits, and enjoying greater job security than the working families forced to pay for it.” Now, with newly sworn-in Gov. Mark Dayton facing a $6.7 billion deficit, some newly elected state legislators believe that Minnesota should continue to reduce public employee compensation as the key to reducing the state’s budget deficit.
The data, however, indicate that state and local government employees in Minnesota are not overpaid. Comparisons controlling for education, experience, organizational size, gender, race, ethnicity, citizenship, and disability reveal that employees of both state and local governments in Minnesota earn less than comparable private sector employees. On an annual basis, full-time state and local government employees in Minnesota are undercompensated by 11% compared with otherwise similar private sector workers. This compensation disadvantage is smaller but still significant when hours worked are factored in. Full-time public employees work fewer annual hours, particularly employees with bachelor’s, master’s, and professional degrees (because many are teachers or university professors). When comparisons are made controlling for the difference in annual hours worked, full-time state and local government employees are undercompensated by 7.9%, compared with otherwise similar private sector workers. To summarize, our study shows that Minnesota public employees earn 7.9% less in total compensation per hour than comparable full-time employees in Minnesota’s private sector.