Working In These Times
The Myth of the Overpaid Public Worker
Even after slashing pensions in 2010 for new state hires, political leaders in Illinois are still faced with one of the nation’s biggest budget shortfalls and continue to see public-worker compensation as the problem. A spokesperson for Democratic Gov. Pat Quinn said in September that state employee wages and benefits are “unsustainable,” and Democratic leaders of both houses of the legislature support various measures to reduce state workers’ pay and benefits.
But a report released today indicates that Illinois state and local government employees are far from overpaid. In fact, they earn 13.5 percent less on average than private-sector workers of comparable education, age, race and gender.
The study, by Robert Bruno and Frank Manzo IV of the University of Illinois School of Labor and Employment Relations, lends fuel to labor’s contention that public workers are not the source of Illinois’ budget woes. Illinois has fewer public workers per capita than any state except Florida, and, according to the study, public workers in Illinois receive relatively modest pay--coming in slightly below the national average.
Like several previous nationwide studies, the new report recognizes that overall, public workers in Illinois earn more on average than private workers. But it notes that 52 percent of public workers have a bachelor’s degree or higher, compared to 31 percent of private workers. When controlling for degree, Illinois public workers with higher degrees actually earn from 32 percent less (for those with a master’s degree) to 40 percent less (for workers with a doctorate degree) than private employees with comparable education. Illinois government workers with less education—from high-school drop-out to those with associate's degrees--earn from 1 to 16 percent more than comparable workers in the private sector, the study found.
By compressing the pay scale, however, public employment reduces economic inequality. The study concluded that the public sector’s more egalitarian pay especially benefits African Americans and other workers of color, as well as women. These groups, Bruno and Manzo write, are likely to have more opportunities and higher pay in public jobs than in the private workforce.
While Illinois wages may be in line with those of other states, its pension and healthcare benefits make up a considerably larger percentage of state and local governments payrolls than those of other states. One factor is the state’s unusual retirement system. Seventy-eight percent of workers in the state retirement system and 45 percent of all public workers in Illinois do not pay into or receive benefits from Social Security, compared to only 25 percent of public workers nationally. This leads to a heavy reliance on state and local pension funds, which drives up costs.
Yet the higher costs do not bring comparably high benefits for Illinois workers, who pay a large proportion of their incomes into retirement funds: 7 to 9.5 percent. “Illinois state employees are currently in the top quarter of states in paying into their retirement system while working,” the University of Illinois study reports, “but in the bottom quarter of states in receiving a proportionate share of their final income during retirement.”
Illinois state employee healthcare costs run relatively high compared to the private sector nationally. But Bruno and Manzo argue that healthcare costs generally are relatively high in Illinois. They also note that state employee health care costs fall in the average range for employees in large, unionized private firms, which offer a better standard for comparison than small businesses.
There’s no doubt that Illinois contends with one of the worst fiscal messes of any state, both in terms of budget deficits and pension underfunding. But the University of Illinois report confirms what was apparent to longtime observers: The state’s budget problem stems not from public employee wages and benefits, but from decades of executive and legislative mismanagement and evasion of responsibility by both political parties. In addition, Illinois’ tax system ranks as the fourth most regressive in the country, according to the Washington-based Institute for Taxation and Economic Policy, and all branches of government have relied heavily on corporate giveaways and tax loopholes. More progressive taxes, such as most other states collect, would help the state pay its bills without attacking its own workforce.
At the state level, politicians initially elected with union support have nevertheless pressed for contractual givebacks and pension cuts for state workers, despite an state constitutional prohibition on any unilateral “diminishment” of pension promises. Gov. Pat Quinn dragged his feet for 15 months on a new contract with AFSCME—with 35,000 members, the largest state union—and took the unprecedented step last fall of suspending the existing contract. (Full disclosure: My wife works for AFSCME.) The move nearly set off a statewide strike before the two sides reached a tentative settlement in late February. The contract combined both cuts in benefits and wage increases—although those may only counterbalance increased healthcare costs.
But the state’s political leaders continue to push for changes in the pension plan that would hurt present and future retirees, such as proposals to make retirees choose between cost-of-living increases and health insurance. Beyond questions about their constitutionality, the new University of Illinois study concludes that such changes would also hurt the state economy by depressing demand.
A coalition of unions called We Are One Illinois has proposed several changes that would strengthen funding for ongoing obligations and gradually pay for many years of deferred contributions to the pension funds. Above all, they would require the legislature to guarantee payment of the state’s annual obligations. Under their plan, workers would contribute an additional 2 percent of their income each year to the pension funds, and the state would eliminate roughly $2 billion annually in corporate tax loopholes.
Illinois government faces financial problems, but as the new University of Illinois study suggests, they’re not a result of excessive pay to workers. With public workers constituting 13 percent of the state's workforce but producing 16 percent of the GDP, they are “a relative bargain,” says author Bruno.
The real issue—as about 60 percent of Illinois voters said in a Public Policy Polling survey in early February—has been Illinois politicians’ decision to borrow and postpone paying its pension obligations. The state's problems could be solved if politicians had the gumption to put in place a structurally adequate, progressive tax system that fairly and fully pay for public needs.
Full disclosure: AFSCME is a sponsor of In These Times.