EmployeeCompensationinOhioPublicvsPrivateSector：在俄亥俄州的公共与私人部门雇员补偿.docx

Employee Compensation in OhioPublic vs. Private Sector Employee Compensation in OhioCarla Edlefson, Ph.D.Ashland UAssociation for Education Finance and PolicyBoston, MAMarch 16, 2012AbstractTwo studies of public versus private sector employee compensation made headlines during the political debate over public employee collective bargaining in Ohio. One was conducted by Biggs and Richwine of the American Enterprise Institute and released by the Ohio Business Roundtable. The other was conducted by Keefe for the Economic Policy Institute. Both studies concluded that in Ohio public employees earned somewhat less in wages than private sector employees. However when benefits were included, Keefe found that public employees earned about 6% less in total wages and nonwage compensation, while Biggs and Richwine determined that public employees earned 43% more in total compensation. This paper contains an analysis of the assumptions and procedures used by the two sets of researchers as they arrived at such different conclusions. Key differences were in Biggs and Richwines treatment of (a) defined benefit vs. defined contribution retirement plans, (b) retiree health care, and (c) job security. The approaches used in both studies are compared with the literature on public vs. private sector compensation.IntroductionOhio was one of the states in 2011 whose new Republican governor and Republican-led general assembly enacted legislation greatly curtailing public employee collective bargaining. Governor John Kasich signed Senate Bill 5 on March 31, 2011 (Hallett, 2011). These changes were among those made to Ohios collective bargaining and public compensation statutes: prohibited strikes for teachers and other public sector workers; replaced binding arbitration for safety forces with the employers last best offer; excluded certain topics, such as teachers class size, that could be lawfully bargained in contract negotiations; prohibited contracts from including a fair share fee to be assessed on members of the bargaining unit that are not union members; reclassified some public employees, including some university faculty members, as management; eliminated salary schedules and steps; required performance pay for teachers; limited employer contributions to health care benefits to 85% of cost; and prohibited the use of seniority as the only criterion in layoff decisions (see Rishel & Other LSC Staff, 2011). Pro-labor advocates soon organized themselves into a petition drive to force a statewide referendum on the legislation. On November 8, 2011, Senate Bill 5 was repealed in the general election. One of the issues in the referendum campaign was to what extent public sector employees in Ohio were over-compensated in comparison to private sector employees. Two competing studies were done on this issue, Biggs and Richwine (2011b) and Keefe (2011). The Biggs and Richwine study was sponsored by the Ohio Business Roundtable, and the Keefe study was published by the Economic Policy Institute, so it was not surprising that they arrived at different conclusions. However, the results and conclusions were very different. Keefe concluded that Ohio public sector workers were less well compensated than private sector 26workers by between 3.5% and 6%. Biggs and Richwine, however, concluded that public sector workers made 43% more in total compensation than private sector workers in Ohio. The purpose of the present study was to examine the differences in assumptions and procedures that produced these very different results, and to place the two studies in the context of the literature on public vs. private sector compensation.The first section of this paper describes the basis used in each study for comparison of public and private sector workers; i.e., techniques for making fair comparisons. The second section presents the findings of the two studies and demonstrates the major differences in how they calculated compensation, particularly benefits. The third section of this paper briefly reviews how the literature treats the topic of public and private sector employee compensation. Finally, I comment on the use of research in this particular political campaign in Ohio.Comparing Public and Private Sector WorkersNationally, there are approximately 16.5 million state and local government workers, of which 6.9 million, or 42%, are employees of elementary and secondary schools. Police, fire fighters and corrections officers make up 2.4 million, or 14.5% of state and local employees. People who work in higher education are 2 million, or 12%, and 1.4 million health care workers are 8% of all state and local government employees. The other 23% are in such areas as libraries, housing, transportation, environment, recreation, and welfare. (McNichol, 2011). According to McNichol, state and local government employed about 5.9% of the total population in 1980 and 6.1% of the total population in 2011. The increase in state and local government jobs during that period was nearly all in education. The Ohio numbers are similar, with about 6% of the population employed in state and local government. In 2010 there were a total of 733,646 full- and part-time state and local government employees in Ohio. The largest group worked in elementary and secondary education: 282,247, or 38.5%. Higher education employed 122, 848 (16.7%); safety forces were 11.5%, or 84,678; and health and hospitals employed 53,400 (7.3%) (US Census, 2012).Data SourcesBoth Keefe (2011) and Biggs and Richwine (2011b) used the most recent data from the U.S. Census Bureau and Bureau of Labor Statistics (BLS) Current Population Survey (CPS) for wage and demographic data. Both studies used the BLS Employer Costs for Employee Compensation (ECEC) data series for the non-wage benefits. The Human Capital ApproachBoth Keefe (2011) and Biggs and Richwine (2011b) used the human capital approach to comparing public and private sector employee compensation. An alternative means of comparison is the position approach, which involves matching public sector workers with private sector workers in similar jobs. Most economists agree that it is extremely difficult to find matches, and that the human capital approach is better (see for example, Congressional Budget Office, 2005). The human capital approach uses regression techniques to control for skill and educational levels and demographic characteristics, because workers in the two sectors vary considerably on these factors, which are highly correlated with compensation. Bender and Heywood (2010) noted thatworkers in the state and local sector are disproportionately female, married, black, and unionized compared to in the private sector. Critically, they are also older and much more educated. In the private sector, only 22.6 percent of workers have completed college, whereas in the state sector the figure is 48.1 percent. In the local sector, this is 47.9 percent. . . . The most common occupations in state and local sectors include teachers, social workers, nurses, and university professors. (p. 7)Educational Level. Biggs and Richwine (2011b) controlled for years of education, and Keefe (2011) used an educational level variable with eight categories from less than high school to professional degree to doctorate. Age and Experience. Biggs and Richwine (2011b) used experience (age minus education minus 6) and experience squared. They used these interaction terms: experience by education and experience squared by education. Keefe (2011) used years of experience and age. Occupations. Biggs and Richwine (2011b) used ten occupational categories, which are not specified in their report. They used dummy variables for federal, state, and local employees. Keefe (2011) considered only state and local employees, not federal workers. A number of studies (for example, Borjas, 2003; Congressional Budget Office, 2005; Lee 2004) have found that federal workers are paid more than their private sector counterparts, so inclusion of federal workers might have affected Biggs and Richwines results.Hours Worked. Both studies took account of workers full- or part-time status. Biggs and Richwine (2011b) included only “adult civilians working full-time for a wage or a salary during the whole previous year. . . . They dropped workers with imputed earnings . . . .and people with annual earnings less than $9000” (p. 7). In addition, “usual hours worked per week” was a variable (p. 7). Keefe (2011) included “only year-round workers who have worked a minimum of 1100 hours, with controls for hours worked per year” (p. 3).Demographic Characteristics. Both studies used models that controlled for race, immigration status, and gender. Biggs and Richwine (2011b) also included marital status and interaction terms, marital status by gender, and gender by race. Keefe (2011) controlled for ethnicity and disability as well.Organizational Size. Biggs and Richwine (2011b) compared state workers in Ohio to workers in firms with 1,000 or more employees. Keefe (2011) controlled for organizational size and industry.Union membership. Neither study included union membership as a variable. Both noted that in the private sector, unions increase wages and benefits. From Keefes (2011) point of view omitting union status was a conservative assumption (p. 10). Biggs and Richwine (2011b) said union workers in the public sector would likely seek a union job in the private sector, so it wouldnt be a source of difference. They admitted that omitting union status from their equations likely increased the public sector wage penalty, “but would not change any of our conclusions” (p. 8).Findings on Wages: Public Sector LowerBiggs and Richwines (2011b) wage regression results showed that in Ohio state workers wages were 6.3% lower than those in the private sector, and local government workers made 1.0% less than private sector workers. The models adjusted R-square was 0.43 (p. 8). Keefe (2011) found that Ohios state workers made 5.6% less and local workers made 6% less than private sector workers (p. 8). Table 1 presents the rather similar findings of the two studies with respect to wages. Keefe (2011b) concluded that Average annual wages and salaries of full-time state and local public employees in Ohio are 5.90% lower than those of comparable private sector employees. However, . . . . when annual hours worked are factored in, full-time state and local employees earn 3.3% less in wages and salaries than similar private sector workers. (p. 1)Biggs and Richwine (2011b) concluded that State workers in Ohio face a wage penalty of 6.3 percent, while local workers face a smaller 1.0 percent penalty. Together, state and local workers in Ohio receive a statistically insignificant wage penalty of 2.5 percent . . . . That is, Ohio public workers appear to receive 2.5 percent less in wages . . . . though we cannot be fully confident that a penalty exists. (p. 8)Table 1Wage Penalty for Public Sector Workers in Ohio: Results of Two StudiesKeefe Study(2010 CPS)Biggs and Richwine Study(2006-2010 CPS)Annual WagesHourly WagesState and Local Employees-5.9% *- 3.3% *- 2.5% nsState Employees-5.6% ns- 2.5% ns-6.3%Local Employees-6.0% *-3.6% *-1.0%* p .05; * p.01 ns = not significantSources: Biggs and Richwine (2011b), p. 8; Keefe (2011), p. 9.Benefits: The Big DifferenceOn the question of nonwage benefits, both studies began with data from the Bureau of Labor Statistics Employer Costs for Employee Compensation (ECEC) series. Both studies controlled for employer size. Benefits as a percent of compensation. Keefe (2011) found that nonwage benefits were 26.7% of employee compensation costs in the public sector and18.9% to 22.8% of compensation in the private sector (pp. 9-10). Biggs and Richwine (2011b) found that employer-provided life, health, and disability insurance amounted to 20.5% of salary in the public sector and 15.2% of salary in the private sector. They concluded, “comparing only paid leave and insurance, public-sector workers have a small advantage in terms of benefits” (p. 10) Both studies noted that private sector employees earn more supplemental and overtime pay. Both agreed that public sector employers provide more retirement and healthcare benefits than private sector employers.Retirement Benefits. Keefe (2011) found that retirement benefits constituted 2.5% to 4.9% of employee compensation in Ohios private sector and 11% in the public sector (p. 10). However, he noted that private sector employers pay Social Security tax, although public employers do not, as Ohio public employees are not covered by Social Security. Keefes (2011) comparison of benefits ended with his analysis of the ECEC data. Biggs and Richwine (2011b) however continued with further analysis. Biggs and Richwine noted that the accounting standards used to calculate public sector pension liability are different than the standards used for private sector pensions, and that the discount rate used by the public sector pension funds, 8 percent in Ohio, is too high. They argued that if the actual rate of return on the employer and employees contributions is less than 8 percent, the pensioner would still be guaranteed the 8 percent, and taxpayers would be obligated to make up the difference, because public employee pension plans in Ohio are defined benefit plans. For a defined contribution plan, “participants can receive a guaranteed return of only around 4 percent, by holding US Treasury securities” (p. 11). Thus they argue adjustments must be done to the cost of the Ohio public sector defined benefit pensions in order to make correct comparisons with the private sector.To make the public-private comparison, Biggs and Richwine (2011b) calculated the contributions to a defined benefit plan that would be needed to produce the same level of pension benefits in retirement as in a defined contribution plan. Using a ratio of the normal cost1 of the pension fund at a 4% discount rate to the cost at an 8% discount rate, Biggs and Richwine calculated a 3.59 adjustment factor for the normal cost for the Ohio Public Employees Retirement System (OPERS).2 The OPERS normal cost, which Biggs and Richwine took from the OPERS annual actuarial report, is 15.44% of payroll at the 8% discount rate. Biggs and Richwine multiplied the 3.59 adjustment factor times 15.44%, and then subtracted the employee contribution of 10%. (3.59 * 15.44)-10 = 45.4 They concluded that “a private-sector worker would need to contribute 45.4 percent of his salary to a 401(k) plan to produce the same level of guaranteed benefits in retirement” as the state or local Ohio employee receives (p. 13). Retiree Health Care. Biggs and Richwine (2011b) also estimated the value of health care that is provided to public sector retirees in Ohio. These data are not included in the ECEC, and Keefe (2011) did not consider retiree health care. Biggs and Richwine were unable to compare health care benefits provided to private sector retirees because of “the lack of access to and generosity of” such benefits in the private sector (p. 15). However, they calculated public sector retiree health care benefits using estimates of Other Post-Employment Benefits (OPEB)-mainly health care-prepared by the consulting firm Milliman for the Ohio State Teachers Retirement System. According to Biggs and Richwine, Milliman estimated that OPEBs were 3.6% of payroll. Biggs and Richwine increased that estimate to 6.3% of payroll, because (a) Ohio uses a higher discount rate than Connecticut and California to determine the value of their retiree health fund, and (b) an individual health care policy in the market place would cost a retiree 25% more than a group coverage policy (p. 16).Social Security. Biggs and Richwine (2011b) go on to argue that “even when Social Security is included, total employer contributions toward retirement benefits in the private sector are just a fraction of those paid to Ohio public employees” ( p. 14). Citing a Social Security Administration study, Briggs and Richwine assume that Social Security participants receive benefits “equal to around two thirds of what their contributions would equal if compounded at a riskless rate of return” (p. 1 7). Thus they multiplied the 12.4 percent required employer and employee contribution to Social Security by two-thirds. Subtracting the 6.2 percent that employees contribute, they came up with 2 percent as the private sector employer share. “In sum, Ohio public employees receive a significant implicit subsidy toward their pensions, while private-sector employees participating in Social Security receive a penalty” (p. 17).Total Benefits. Biggs and Richwine (2011b) concluded that public employee benefits are 87.7 percent of salaries, and benefits in the private sector are 39.5% of salaries (p. 18). Table 2 illustrates their calculations. Table 2Ohio public and private sector employee fringe benefits as a percent of salary: According to Biggs and Richwine BenefitsPublic SectorPrivate Sector Vacation, holiday, sick & personal leave10.9% 111.5%1Life, health, disability insurance20.5%115.2%1Retirement and savings Defined Benefit Plans Defined Contribution Plans OPEB45.4%1.0%6.3%52.7%22.9%3.1%06.0%1Social Security, Medicare, Unemployment, Workers Compensation3.7%26.8%2Total