As If That Were a Small Thing

The argument that public workers earn more or less than their private-sector counterparts is debatable but only done so honestly when their full compensation and benefits package is taken into account.

There is no evidence that public-sector workers in Wisconsin have higher total compensation than their counterparts in the private sector. It is true that a gross comparison shows many public-sector workers earn more, but they are significantly better-educated than most workers in the private sector. When one compares Wisconsin public-sector workers with their real counterparts, as the Economic Policy Institute has done, Wisconsin pays its public-sector workers 14.2 percent less than workers in the private sector.

Walker and other Republican leaders in the state have made a big deal of the “gold-plated pensions” of state workers, yet median state and local pensions in Wisconsin are less than $23,000.

As if that were a small thing.

This is an argument that resonates unless you consider the fact that nowadays almost no one in the private sector has a pension…at all.

…and a pension is no small thing to be entitled to and no small thing for taxpayers to fund.

The vast majority of private-sector employees rely on defined contribution plans for retirement, which is to say their retirements depend on what they and their employers contribute to the plan plus any growth in the account. Whatever balance is accumulated at retirement is what you have to work with to create income at retirement.

“Pensions” refers to defined benefit plans where a worker receives a promised monthly income at a given age at retirement, until death, and in many cases with an equal or reduced benefit for a spouse until their death. Often times these plans vest well before a defined contribution plan could ever possibly have enough saved into it to create the same income benefit at retirement.

Because the factors required for managing these plans, including life expectancy and market growth assumptions, are so difficult to anticipate and therefore tricky to calculate adequate funding levels, defined benefit pensions have long since been largely abandoned by the private sector in favor of defined contribution plans like 401k’s.

Governments not held accountable by shareholders, market forces or mathematics have ignored this trend and to make matters worse have underfunded these plans for years leaving the taxpayer on the hook for billions and billions and billions of benefit obligations. At the same time, many public-sector workers are able to “retire” much earlier than their private-sector counterparts, collect their guaranteed pensions and join the private sector to finish out their careers; double-dipping for as many as ten years.

How is the perpetuation of such a thing possible? Simple: public-sector labor unions empowered by liberal politicians in exchange for their vote.

So the next time you hear anyone making the argument that public-sector workers make less money than their private-sector counterparts, remember that the dollars that are (or should be) being put away for them to make good on the promise of their pensions, more than make up for any differences in salary and blow away anything available in the private sector.