Efforts to roll back public sector wages and benefits and collective bargaining are under way in many states, with proponents claiming that overpaid public sector workers are a drag on state budgets. Our widely disseminated research refuting that claim has been targeted by critics. But as this paper shows, the criticisms leveled against our analyses of public employee compensation1 are themselves unsound. This paper responds to the criticisms that suggest our results are biased because:
• We exclude part-time workers and part-year employees from the analyses.
• We include organization size controls in our analyses.
• We do not include a compensating wage differential to reflect the relative stability of public employment.
• We do not account for the greater returns earned by defined-benefit plans over defined-contribution plans.
• We do not account for government retiree health benefits.
Most recently, these criticisms have appeared in a Heritage Foundation Working Paper by Andrew Biggs, a resident scholar at the American Enterprise Institute, and Jason Richwine, a senior policy analyst at the Heritage Foundation.2 Their analysis of California data concludes that California public employees are overpaid by 30%, whereas our research concluded that California public employees are neither overpaid nor underpaid when compared with comparable private sector workers. Additionally, a report written anonymously for the Center for Union Facts (Anonymous at UF), reanalyzed our national data and said that public employees are overpaid by 5%,3 not slightly underpaid (3.7%) as we reported.
This paper will show that the critics have relied on inappropriate, unreliable, and incorrect empirical techniques to assert that public employees are overpaid. As just one example, Biggs and Richwine claim that public sector workers have more job stability and that because of this, 15% must be added to their reported level of compensation. But they provide no evidence for such a compensating wage premium for employment stability, much less 15%.