An Unsustainable Public Worker Gravy Train Bubble

by: Mark J. Perry

Andrew Biggs (AEI) and Jason Richwine (Heritage) provide evidence in today's WSJ of the "public worker gravy train" in California, where government workers are compensated up to 30% more generously than their private-sector counterparts in large private companies. Reasons for the huge public-sector premium? They point to three sources:

1. Public-sector pension programs are more generous than those in the private-sector.

2. Public-sector medical benefits, both while working and during retirement, are more generous for government workers than comparable workers in the private sector.

3. Government employees have much greater job security than workers in the private sector, equivalent to a 15% compensation premium.

Taken together, those additional, and very generous non-wage benefits for government workers in California translate into a whopping 30% compensation premium, i.e. "gravy" (paid for by Golden State taxpayers of course), compared to total compensation at private firms (controlling for age, education, experience, etc.).

The chart above compares jobless rates between private and public sector employees nationally, on an annual basis back to 1976, and shows that private sector workers face an average unemployment rate (6.6%) that is almost twice as high as the average rate for government workers (3.4%). The fact that government workers are 50% less likely to be unemployed in any given year than private sector employees (because they work in a "recession-proof industry") is part of the reason that Biggs and Richwine find a 15% compensation premium for government workers.

Commentator Mike Rosen describes the "public worker gravy train" as "unsustainable bubble" in today's Denver Post:

Several financial and economic bubbles have popped in recent years. Now, the bubble of unsustainable compensation levels for federal, state and local government employees is bursting.

Once upon a time, those who opted for a career in what used to be called "public service" did so understanding they'd trade off lower pay for more job security and less performance pressure than in the private sector. Nowadays, government employees are not only better paid than the private sector average but also enjoy far better health insurance at lower costs along with lavish retirement benefits, the product of rapidly expanding and aggressive public sector unions that have formed an incestuous relationship with the politicians they fund and elect.

The problem is particularly acute at the state and local level, since those governments have to balance spending against current revenues. They can't run deficits like the feds. And in this economy, the spending gaps are way too large to be closed with tax increases without making the economy even worse, resulting in yet lower revenues.