Private vs. Public Employment
Private vs. Public Employment
By Phil Krinkie
September 12, 2012
Decades ago workers weighed their decision between public employment vs. a private sector career based on a simple premise, stability vs. compensation. This may be a grand simplification of the decision making process, yet many people seemed to use this criteria. Individuals choosing a career path weighed the benefit of a government job with lower compensation in part for the promise of long term stable employment. On the other hand, the private sector often provided faster advancement along with better compensation. But the private sector downside was the inevitable market forces that could lead to layoffs or transfers.
But today this entire premise of better compensation in the private sector has been turned on its head. In the current turbulent economic times government workers not only enjoy long term job stability but also better pay and benefits when compared to positions in the public sector.
The dichotomy between private sector compensation and government employee compensation was highlighted in a two part 2010 Minnesota Taxpayers Association Study sponsored by the Minnesota Chamber of Commerce and the Commercial Real Estate Development Association. The Study called “Minnesota Public Sector Compensation”, reported that the average wage for a state government worker in 2009 was $59,415, which ranked Minnesota 7th highest in the nation in state employee wages. In a comparison of private sector vs. public sector wages they found that 24 of 41 job classifications had an average wage that was 10% higher for the government worker. In 17 of 41 occupations the private sector compensation was 15% higher than the public sector. Most of these positions were highly skilled or advanced positions such as attorneys, accountants and engineers. The study also highlights the difference in benefit levels between private sector and public employees. This adds to the disparity in total compensation between the private sector and public sector employees.
The study’s conclusion is that when wages and benefits are combined, 85% of the state work force receives higher compensation than their private sector counterparts. No one should begrudge these state workers the pay and benefits they receive. State workers are talented and dedicated individuals that do a great job, but on average they do earn more than their private sector counterparts.
The key question is should there be changes in the public employee compensation?
Just two weeks ago the Legislative Committee on Employee Relations response to this question was YES.
In a straight party line vote of 6 to 4 the Republican majority rejected a union contract agreement for 27,700 state employees. The panel rejected the union wage and benefit package for two primary reasons. First the contracts contained the antiquated provision of annual pay increases of 2.7 to 3.5 percent based solely on longevity. In the private sector, the practice of automatic pay increases based solely on the fact that the employee clocked another year on the job went out with the rotary phone. The second reason the panel rejected the contracts is because they still provide 100% state paid health insurance. It’s a fact – state employees pay zero for their individual health insurance premiums and pay only 15% of the insurance cost if they elect family coverage.
Today in the private sector employees pay 20% of their health insurance cost on average. Even public labor advocate, Governor Dayton, has asked the state’s two largest employee unions to require individuals to pay 10% of their health insurance premiums.
In addition to these generous health care benefits the union contracts also called for a 2% across the board pay increase to be effective January, 2013. The scheduled pay increase would have taken effect just six months before the contract was scheduled to expire June, 2013.
With the state budget anticipated to have another billion dollar shortfall it hardly seems appropriate to continue down the same path. As Chair of a Minnesota Senate Finance Sub-committee on Employee Relations Senator Mike Parry stated, “The state deserves better than the same-old same-old rubber stamp.”
It is time for the Legislature and Governor Dayton to change the state employee compensation system by implementing three basic changes:
- 1.All state employees should undergo annual performance appraisals and the compensation system should include performance factors.
- 2.All state employees should contribute a significant amount to their health insurance cost.
- 3.The state should start to move away from defined benefit pension plans to defined contribution plans similar to what the private sector has done for decades.
Unless the Governor and Legislature undertake the challenge to make substantial changes to the state employee compensation system, there will be a growing animosity toward public sector workers who receive higher wages and better benefits than those who are paying the taxes that keep them employed.