Is New York's Public Sector Workforce Overpaid?

THE CURRENT JOB OUTLOOK

Is New York’s Public Sector Workforce Overpaid?

by Gregory DeFreitas

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state and local government workers are paid -2.6 percent less than comparable private sector employees in New York State – and 15.7 percent less nationwide.

• Within the state, after controlling for worker experience and educational differences, there is no significant pay difference between New York City’s public and private workforces. The same is not true on Long Island. But after adjusting more fully for other important differences like establishment size, racial/ ethnic/gender composition and union coverage, neither Long Island, New York City nor the state as a whole have any significant public/private pay differential among otherwise comparable workers.

or much of the past decade, state and local governments and the people who work for them have increasingly been targets of critics challenging their costs and benefits to taxpayers. The Great Recession of 2008-09 fueled much of this criticism: many governors and mayors responded to its deep job and revenue losses with austerity policies. Police, firefighters, teachers and many others, blameless for the recession, nonetheless faced job and workhour cuts, as well as wage and hiring freezes.

Once the 2010 elections brought an ultraconservative cohort of Tea Party followers to power even in once-progressive Michigan and Wisconsin, they expanded their attack on public employees. Even harsher pay and job cuts were justified by claims that their wages and benefits were excessive compared to the private sector. Those claims in turn were cited by anti-union politicians to curtail public workers’ rights to collective bargaining and to adopt so-called right-to-work laws that often defund their unions. The Janus vs.

AFSCME case that reached the Supreme Court in 2018 has the potential to extend the union defunding process nationwide.

New York would seem an ideal test case for the question whether public employees are overcompensated. Often viewed as a liberal bastion comfortable with a high level of government services and employment, it is also now the most unionized state in the nation – due mainly to a union membership rate in the public sector over twice the national average.

Analysis To compare public sector and private sector pay, any researcher must face the fact that there are many government-funded jobs – whether police, firefighting, governing or public school teaching – without close occupational matches in the private sector.

Likewise, the large fraction of private sector sales and manufacturing jobs have no ready public sector parallel. The now-standard economic alternative is to compare the earnings in the public and private spheres among persons with similar “human capital” characteristics related to their skill levels. Educational attainment and years of work experience (usually approximated by years since school-leaving) are fundamental to such research efforts.

In this report, I investigate a large government data set through 2017 to compare compensation levels between state and local government employees and private sector workers statewide, separately in New York City and Long Island, and nationwide. My main findings in brief are: • The typical New Yorker working in the public sector today earns higher weekly wages, at the median, than the typical private sector employee.

• But this is largely explained by the fact that the typical public sector employee is older, more experienced and far more likely to have advanced educational degrees than is common in the private sector. New York’s state and local government employees are more than twice as likely as private sector New Yorkers to have an advanced degree beyond a 4-year B.A. Once we control for these experience and educational differences, it turns out that

In what follows I report new findings from my analysis of a large microdata set from the U.S. Census Bureau’s Current Population Survey (CPS). The CPS is the monthly national survey conducted for the Bureau of Labor Statistics on random samples of 50,000 to 65,000 households nationwide. The survey questionnaire asks about a rich variety of demographic, geographic and employmentrelated matters. Sampled households are interviewed once each month for four consecutive months.1 One year later, each of these “rotation groups” is again interviewed for a final four consecutive months. Crucially for our study, among the information gathered from all wage and salary employees in these groups (excluding the self-employed) are weekly earnings, number of employees at the respondent’s workplace and union membership and coverage. I here utilized the Outgoing Rotation Group files (CPS-ORG) for all the years through 2017. The data set is not, of course, without

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Figure 1: State & Local Govt. Jobs as % All Jobs: NY State, NYC, Long Island & Nationwide

limitations: in particular, it lacks benefit values for non-wage compensation and identifies only county of residence, which may differ from the city, county or state where the respondent works.

the public job share had plunged to 13.5 percent, the lowest level in a half-century. New York has followed a roughly similar pattern. In 2008, the first recession year, the public sector’s share of all jobs was 13.3 percent in New York City, 14.6 percent in Long Island and 15.8 percent statewide. A decade later, their public job shares have shrunk to 11.2 percent, 13.6 percent and 14.1 percent, respectively.

Even with the large national sample size of our Current Population Survey data source, the CPS metro- and city-level subsamples are generally not large enough for a single year to yield statistically significant estimates on many narrowly defined demographic or economic subgroups. In order to have large enough data samples for reliable estimates of more detailed analysis of specific age, racial, or job groupings in the New York metro area, I pooled the CPS data into a three-year grouping: 2015-17. The study sample consists of full-time employees (working at least 35 hours/week) in either the private sector or state and local government who report positive earnings. Excluded are: the self-employed, persons employed in agricultural or domestic housework jobs, full-time students, and individuals whose wages were imputed by the Census Bureau rather than reported directly by the worker.2

How similar or different are the pay and pay-related characteristics of public versus private sector employees? Table 1 shows that, before any adjustments for workers’ skill and other differences, a typical New Yorker working in the public sector today earns higher weekly wages, at the median, than the typical private sector employee. The median governmental pay advantage is $215 in New York City, $491 in Nassau-Suffolk, and $232 statewide. But the table also reveals a number of sharp differences between the two sectors that may help explain the New York pay gap. First, state and local government employees are typically older than nongovernmental workers. Within our age 18 to 64 study sample, the average age is 43.5 years statewide, compared to 40.7 in the private sector. And the latter has a far lower proportion of employees ages 35 and over.

Findings Figure 1 charts the sharp cuts in state and local government jobs since the Great Recession in New York and nationwide. While private sector employment growth has slowly but steadily replenished its job count to surpass pre-recession levels, state and local government’s share of all jobs remains depressed. By 2017,

The public sector also averages far better-educated workers than the private sector. New York’s state and local government employees are more than twice as likely as private sector New 6

Table 1: Wage, Age, Gender, Education & Union Coverage Characteristics of Private & Public Sector Employees, Ages 18–64, All U.S. & New York, 2015–2017 National

New York State

New York City

Long Island

private sector

public sector

private sector

public sector

private sector

public sector

private sector

public sector

$840

$982

$931

$1,163

$923

$1,138

$1,080

$1,571

% of All Employees

85.7

14.3

82.2

17.8

85.7

14.3

78.4

21.6

Female (%)

42.0

57.4

44.1

55.0

45.1

53.3

43.8

50.3

18-24

9.4

3..6

8.5

2.7

8.6

3.1

8.8

3.6

25-34

27.4

21.3

28.1

22.3

32.2

26.2

20.7

18.3

35-49

35.7

40.5

35.3

41.4

36.2

37.4

35.6

46.3

50-64

27.4

34.6

28.1

33.7

22.9

33.3

34.7

31.9

Less than HS

7.6

1.5

7.4

2.2

10.9

4.0

5.5

0.0

HS Grad

27.0

15.1

22.8

16.2

19.9

17.9

20.7

11.5

Some College

28.4

22.4

23.1

22.5

17.5

23.4

23.7

19.3

4-yr Degree

25.1

29.1

29.9

19.6

33.5

22.5

32.9

12.4

Advanced Degree

11.9

31.9

16.8

39.6

18.1

32.2

17.2

50.6

Union Coverage

8.4

46.7

19.1

82.6

23.6

80.2

14.8

87.2

Weekly Wage (Median)

Age (%)

Education (%)

Note: Public sector employees limited to state and local government. See text for sample selection criteria. Long Island=Nassau+ Suffolk Co.Source: Author’s analysis of US Census Bureau’s Current Population Survey (CPS-ORG) microdata, IPUMS file, 2015-2017

share of state and local government jobs. Statewide, 55 percent of such jobs are held by women, compared to just 42 percent of jobs in the private sector. Similar ratios apply in New York City and Nassau-Suffolk. Insofar as women, despite many decades of progress, still face a host of discriminatory barriers to pay and promotional parity with men, the higher female share in state and local government might dampen the sector’s relative earnings.

Yorkers to have an advanced degree beyond a 4-year B.A. (39.6 percent vs. 16.8 percent). The degree gap is especially wide on Long Island, where half those working in the public sector have an M.A., J.D., PhD or other advanced degree, compared to just 17.2 percent of other employees.

Still another advantage that decades of research have found to be strongly correlated with elevated earning power is union representation. New York State now has the highest union coverage rate in the nation, largely because the vast majority of public sector workers are in unions.3 In our sample, over four in five state and local government employees was unionized, but only 19.1 percent of private sector workers. As with the education gap, Long Island has a wider union density gap: 87.2 percent of government workers unionized, but just 14.8 percent of nongovernmental employees.

Unadjusted & Adjusted Pay Gaps The impacts of workers’ educational and work experience differences can be quickly grasped by first estimating a simple regression of individual earnings on a dichotomous variable set equal to 1 if a survey respondent reports primary employment with the state or local government (0 otherwise). In this simplest case, the unadjusted median public sector wage advantage in New York State is +15.9 percent – twice the national level. The unadjusted differential is 10.8 percent in New York City and triple that on Long Island (35.6 percent). The results are shown in the first set of bars

On the other hand, some aspects of the public sector may tend to depress its relative pay. Women have a disproportionately high 7

Figure 2: Average Weekly Pay Differentials (%), Public vs.

Private Sector Employees in New York and Nationwide, 2015-2017

on the left in Figure 1. Note that Long Island’s relatively smaller sample size calls for caution in interpreting such results.

earn 14.1 percent less and Hispanics 24.6 percent less than nonHispanic white men.

Next, to control for the marked human capital differences shown in Table 1, I expand the set of explanatory variables in the regression model to control for differentials in years of work experience and educational attainment. The findings reveal that New York States’ public sector workforce earns -2.6 percent lower weekly wages than their private sector counterparts with similar education and experience (middle bars of Figure 2). Likewise, in New York City the initial, unadjusted public pay advantage is dramatically reduced with just two schooling and experience controls, falling to zero. And on Long Island, these controls more than cut in half the unadjusted public advantage, though it is still a positive and statistically significant +17.4 percent.

After introducing a full set of controls, the findings reveal that weekly earnings in the public sector are insignificantly different than pay among comparable workers in the private sector – in New York State as a whole, in New York City and on Long Island. The regression coefficients are small (-3.54 percent; +3.84 percent; and +1.69 percent, respectively) and do not come close to standard significance levels (Figure 2, rightmost bars).

Benefits State and local government employees tend to receive a higher portion of their overall compensation in benefits, like employerprovided health insurance and pension plans, than is true in the private sector. In part this reflects the fact that government workers today are much more likely to enjoy representation by labor unions, organizations that historically led the way in successfully bargaining for such benefits in many industries. Still, there are other factors that tend to depress the benefit costs of government employees incurred by state and local taxpayers. For example, though it is not widely known, a substantial number of public employees are not covered by Social Security and are ineligible for benefits. Nor do state and local governments participate in the federal unemployment program.

Still other important differences in the public and private workforces must be taken into account to avoid systematically biasing their earnings gap upwards or downwards. The fact that women and African Americans still tend to average lower earnings than white men of similar age and education means that their above-average share of public sector jobs could bring with it a downward bias in estimates of that sector’s median pay. The state’s high public sector union density operates in the opposite direction, raising pay above nonunion standards. To adjust for the influences of a broader set of relevant factors, my final set of estimates included controls for individual differences in: education, work experience, gender marital status, race, Spanish origin, private sector workplace size and union coverage, as well as job sector.4

However, the data source used her (CPS-ORG), like other major data banks mined by labor economists, lacks direct information on the dollar value of benefits received by respondents. Some analysts have tried to approximate benefits differentials through use of the Employer Costs for Employee Compensation (ECEC) survey conducted quarterly by the U.S. Dept. of Labor. Though widely accepted as the most reliable available measurement of employer benefit costs, it requires a more aggregate estimation approach that can only link individual workers to the average benefits values in their job sector. And there are no published state-level ECEC figures.5

The results with this more complete set of controls show that, in New York State among otherwise-similar full-time employees, the higher the educational degree one possesses, the higher the earnings advantage. But they also indicate that, even after controlling for many job-relevant differences, women earn 23.9 percent less than comparable male workers, African Americans 8

To date, national estimates from ECEC-based studies have found that, even after inclusion of a wide range of benefits like pensions and health insurance, public sector employees receive lower full compensation than comparable private sector workers. For example, economists Sylvia Allegretto and Lawrence Mishel recently examined national data on full-time elementary, middle and secondary public school teachers. They found that the average teacher’s inflation-adjusted weekly earnings have stagnated since 1990. And, even after including all estimated benefits, the total compensation of public school teachers is 11.1 percent lower than that of otherwise-comparable workers.6

important differences like establishment size, racial/ethnic/gender composition and union coverage, Long Island exhibits no significant public/private pay differential among otherwise comparable workers.

Though the Great Recession may be a fading memory for most, its legacy remains in the stagnant pay and depressed job counts of most state and local governments. With the recent conservative ascendancy to power in Washington and many statehouses, demands to sharply cut income tax rates will continue to pressure government budgets, fueling continued resistance to worker demands for higher pay and benefits, an end to workforce shortages and restoration of labor union rights. The 2018 outbreak of public school teacher walkouts in Kentucky, Oklahoma and West Virginia may be the first signs of growing resistance even in largely anti-union, right-of-center regions.

Conclusions After statistical analysis of a large government data set through 2017, the findings here show that the typical New Yorker working in the public sector today earns higher weekly wages, at the median, than the typical private sector employee. But they also clarify quite understandable reasons for this difference. The typical public sector employee is older, more experienced and far more likely to have advanced educational degrees than is common in the private sector. New York’s state and local government employees are more than twice as likely as private sector New Yorkers to have an advanced degree beyond a 4-year B.A. Once we control for these experience and educational differences, it turns out that state and local government workers are paid -2.6 percent less than comparable private sector employees in New York State – and 15.7 percent less nationwide.

The stakes in these battles are high for most citizens, regardless of one’s sector of employment. Private sector workers depend on a wide array of services provided daily by state and local governments, as do their families. And public sector jobs have for decades played an important role in expanding economic opportunities to long-disadvantaged women and minority workers.7

Gregory DeFreitas is a Professor of Economics at Hofstra University, Director of its Labor Studies Program, and Director, Center for the Study of Labor and Democracy (CLD).

Moreover, within the state, after controlling for worker experience and educational differences, there is no significant pay difference between New York City’s public and private workforces. The same is not true on Long Island. But after adjusting more fully for other

REGIONAL LABOR REVIEW, vol. 20, no.2 (Spring 2018). © 2018 Center for the Study of Labor and Democracy, Hofstra University

Table 2: Public Sector Employment Shares of All Jobs by Race & Ethnicity, Ages 18–64, All U.S. & NY State, NYC & Long Island, 2015–2017 National % Employed in Public Sector

New York State

New York City

Long Island

All

Men

Women

Men

Women

Men

Women

Men

Women

TOTAL

14.3

10.9

18.6

14.9

21.3

12.5

16.5

19.6

24.1

White, non-Hispanic

15.7

12.2

20.0

16.7

23.2

12.2

13.4

24.3

29.8

Black, non-Hispanic

16.5

13.5

19.4

19.9

25.3

22.5

25.9

21.2

14.9

Asian, non-Hispanic

8.6

7.0

10.5

6.1

9.5

5.3

7.2

9.9

11.4

Hispanic

9.5

6.4

14.6

9.9

16.6

10.3

17.8

3.2

6.4

Note: Public sector employees limited to state and local government. See text for sample selection criteria. Long Island=Nassau+Suffolk Co. Source: Author’s analysis of US Census Bureau’s Current Population Survey (CPS-ORG) microdata, IPUMS file, 2015–2017.

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Notes 4 The regression specification included work experience as a quadratic

1 This

study uses microdata from the US Census Bureau’s Current Population Survey, its monthly nationwide survey. I use the merged Outgoing Rotation Group extracts that are taken from the fourth and eighth months of such surveys, when usual earnings and related job questions are asked. Note that the Census Bureau top-codes the small share of very high-income responses by assigning a single value to all earnings above its annual cap. I follow standard practice in working with estimates of average income above the Census topcode value that assumes the distributional tails follow a Pareto distribution. To adjust earnings figures for price inflation, I deflate nominal wages by the Consumer Price Index Research Series Using Current Methods (CPI-U-RS). For data descriptions and documentation, see: http://www.bls.gov/cps/documentation.htm.

The specific microdata source is from IPUMS files; for file details see: Flood, Sarah, Miriam King, Steven Ruggles, and J. Robert Warren. Integrated Public Use Microdata Series, Current Population Survey: Version 5.0. [dataset]. Minneapolis: University of Minnesota, 2017. https://doi.org/10.18128/D030.V5.0.

2 W hen Census surveyers are unable to collect direct earnings information from sampled individuals, they impute their earnings from respondents similar in location, education and a few other characteristics. Allegretto and Mishel show that this method creates a systematic upward bias in school teacher earnings, that has risen over time as the imputed share of CPS earnings data has grown. To avoid such bias, I exclude from my sample anyone with imputed earnings. See Allegretto, Sylvia and Lawrence Mishel. 2016. “The Teacher Pay Gap is Wider Than Ever,” EPI Report (8/9/16): www. epi.org.

3 See separate union density estimates for the state, NYC and Long Island, with detailed figure by age, gender, race and job sector in DeFreitas, G. and B. Sengupta, “The State of New York Unions 2017,” Regional Labor Review (Fall 2017): 5-21.

and the dependent variable was logarithmic. The expanded regression also included a control for regional earnings and cost-of -living variations in estimates on the national sample.

5 Some researchers have used unpublished regional ECEC figures to estimate benefits differentials. For examples of regional benefits estimates, see: Keefe, Jeffrey. 2010. “Are New Jersey Public Employees Overpaid?.” EPI Briefing Paper #270 (9/15/10): www. epi.org; Morrissey, Monique. 2016. “Unequal Public Sector Pay in Connecticut? Yes – Taxpayers Are Getting a Bargain,” EPI Report (12/6/16): www.epi.org; Thompson, Jeffrey & John Schmitt. 2010.

“The Wage Penalty for State and Local Government Employees in New England,” PERI Working Paper #232: www.peri.umass.edu.In ongoing research, I hope to use unpublished state-level benefit estimates to extend the present study.

6 Allegretto, Sylvia and Lawrence Mishel. 2016. “The Teacher Pay Gap is Wider Than Ever,” EPI Report (8/9/16): www.epi.org. Other national studies of public-private compensation differences include: Bender, Keith A. and John S. Heywood. 2010. “Out of Balance?

Comparing Public and Private Sector Compensation Over 20 Years.” Washington, DC: Center for State and Local Government Excellence and National Institute on Retirement Security; Keefe, Jeffrey.2016. “Public Sector Workers Are Paid Less Than Their Private Sector Counterparts – And the Penalty Is Larger In Right To Work States,” EPI Economic Snapshot (1/14/16); and Keefe. 2010.

“Debunking the Myth of Overcompensated Public Employees,” EPI Briefing Paper #276 (9/15/10): www.epi.org; 7 See, for example, Cohen, Patricia, “Public Sector Jobs Vanish, Hitting Blacks Hard,” NY Times (5/24/15); and “State and Local Jobs Under Siege as a Middle-Class Gateway,” NY Times (4/22/18).

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