OT: The Golden State

[sjk]

We’re screwed……

http://www.bloomberg.com/news/print/2012-12-11/-822-000-worker-shows-california-leads-u-s-pay-giveaway.html

$822,000 Worker Shows California Leads U.S. Pay Giveaway

By Mark Niquette, Michael B. Marois and Rodney Yap – Dec 11, 2012
Nine years ago, California Democrat Gray Davis became the first U.S. governor in 82 years to be recalled by voters. The state’s 20 million taxpayers still bear the cost of his four years and 10 months on the job.

Davis escalated salaries and benefits for 164,000 state workers, including a 34 percent raise for prison guards, the first of a series of steps in which he and successors saddled California with a legacy of dysfunction. Today, the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime.

Payroll data compiled by Bloomberg on 1.4 million public employees in the 12 most populous states show that California has set a pattern of lax management, inefficient operations and out-of-control costs. From coast to coast, states are cutting funding for schools, public safety and the poor as they struggle with fallout left by politicians who made pay-and-pension promises that taxpayers couldn’t afford.

“It was completely avoidable,” said David Crane, a public-policy lecturer at Stanford University.

“All it took was for political leaders to think more about the general population and the future, rather than their political futures,” said Crane, a Democrat who worked as an economic adviser to former Governor Arnold Schwarzenegger, a Republican. “Citizens should be mad as hell, and they shouldn’t take it anymore.”

Billions Short

Across the U.S., such compensation policies have contributed to state budget shortfalls of $500 billion in the past four years and prompted some governors, including Republican Scott Walker of Wisconsin, to strip most government employees of collective-bargaining rights and take other steps to limit payroll spending.

This is the first story in America’s Great State Payroll Giveaway, a six-part series. Coming tomorrow: how a court ruling and state bungling sent the price of psychiatric care soaring, and led to suicides in California’s prison and mental health systems.

In California, Governor Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. The 74-year-old Democrat has continued requiring workers to take an unpaid day off each month, which could burden the state with new costs in the future.

Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports.

‘It’s Outrageous’

“It’s outrageous what public employees in California receive in compensation and benefits,” said Lanny Ebenstein, who heads the California Center for Public Policy, a Santa Barbara-based research institution critical of public payrolls.

“Until public employee compensation and benefits are brought in line, there will be no answer to the fiscal shortfalls that California governments at every level face,” he said.

Among the largest states, almost every category of worker has participated in the pay bonanza. Britt Harris, chief investment officer at the Teacher Retirement System of Texas, last year collected $1 million — including his $480,000 salary and two years of bonuses — more than four times what Republican Governor Rick Perry received. Pension managers in Ohio and Virginia made up to $678,000 and $660,000, respectively, according to the data, which Bloomberg obtained using public- record requests. In an interview, Harris said public pension pay must be competitive with the private sector to attract top investment talent.

Psychiatrists Lead

Psychiatrists were among the highest-paid employees in Pennsylvania, Ohio, Michigan and New Jersey, with total compensation $270,000 to $327,000 for top earners. State police officers in Pennsylvania collected checks as big as $190,000 for unused vacation and personal leave as they retired young enough to start second careers, while Virginia paid active officers as much as $109,000 in overtime alone, the data show.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Rising employee expenses are crowding out other priorities for state and local governments and draining resources for college tuition, health care, public safety, schools and other services, Schwarzenegger said in an e-mailed response to questions.

Salaries, Retirement

“California spends most of its money on salaries, retirement payments, health care benefits for government workers, and other compensation,” said Schwarzenegger, 65, who replaced Davis as governor. “State revenues are up more than 50 percent over the past 10 years, but still we’ve had to cut spending on services because so much of that revenue increase went to increases in compensation and benefits.”

Brown, who granted state workers collective-bargaining rights during his first tenure as governor more than three decades ago, has reduced pension costs for new employees while leaving most retirement benefits for current workers intact.

Last year, to balance the budget, he used a policy set by Schwarzenegger, his predecessor, to save $400 million through the forced monthly day off. He persuaded voters to back a tax increase, imposed a hiring freeze as his predecessors did and told as many as 26,000 prison employees they might lose their jobs as thousands of criminals are shifted to county jails.

Inherited Problems

“Governor Brown is busy fixing the many problems that he inherited from past administrations,” said Gareth Lacy, a spokesman for the governor. “California’s $26 billion budget deficit, and the decades-old structural imbalance, was eliminated in large part by cutting waste and slashing costs. The governor also achieved historic reforms to public pensions and workers’ compensation that will save the state billions of dollars.”

Former governor Davis, in a telephone interview, said he now thinks state employee compensation is too high.

“I find it offensive that people who work for the state try to turn around and abuse the state through inflated overtime claims and lump-sum payouts,” Davis said. “We have high salaries, they have to come down. There was a time when we could afford them, but we can’t now.”

Brown, who took office in January 2011, had plenty of incentive to crack down. The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio, where unions have the same right to bargain collectively for the best pay packages, according to data compiled by Bloomberg.

Sinking Schools

The result isn’t only a heavier burden on California taxpayers. As higher expenses competed for fewer dollars, per- pupil funding of the state’s public schools dropped to 35th nationally in 2009-2010 from 22nd in 2001-2002. Californians have endured recurring budget deficits throughout the past decade and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a U.S. state.

The story of one prison psychiatrist shows how pay largesse has spread.

Mohammad Safi, graduate of a medical school in Afghanistan, collected $822,302 last year, up from $90,682 when he started in 2006, the data show. Safi was placed on administrative leave in July and is under investigation by the Department of State Hospitals, formerly the Department of Mental Health.

Long Hours

The doctor was paid for an average of almost 17 hours each day, including on-call time and Saturdays and Sundays, although he did take time off, said David O’Brien, a spokesman for the department. In a brief interview outside his home in Newark, California, Safi said he’d been placed on leave for working too many hours and declined to comment further. An increase in the number of beds at the facility where Safi worked forced him to cover more shifts, and he was allowed to do some of the work from home, said his lawyer, Ed Caden.

Safi and other psychiatrists employed by the state benefited from what amounted to a 2007 bidding war between California’s prisons and mental health departments, after a series of federal court orders forced the state to improve its inmate care. Higher pay in the prison system was matched by mental health, and as psychiatrists followed larger salaries, the state’s cost to provide the care soared.

Last year, 16 psychiatrists on California’s payroll, including Safi, made more than $400,000. Only one did in any other state in the data compiled by Bloomberg, a doctor in Texas. Safi earned more than twice as much as any state psychiatrist elsewhere, the data show.

Accumulated Vacation

The disparity with other states is also evident in payments for accumulated vacation time when employees leave public service. No other state covered by the data compiled by Bloomberg paid a worker more than $200,000 for accrued leave last year, while 17 people got such payments in California. There were 240 employees who received at least $100,000 in California, compared with 42 in the other 11 states, the data show. New Jersey Governor Chris Christie calls such payments “boat checks” because they can be large enough to buy a yacht.

Topping the list was $608,821 paid to psychiatrist Gertrudis Agcaoili, 79, who retired last year from the Napa state mental hospital after a 30-year career. Agcaoili said in a telephone interview that it was her right to take the payment.

‘Against Rules’

“Those payouts are payouts of accumulated salary that it’s against the rules to allow people to accumulate, and it shouldn’t have been done, and shouldn’t be done,” said Marty Morgenstern, California’s labor secretary, who served as state personnel director under Davis. “They didn’t accumulate that kind of leave time in one year. It’s something that went on and on.”

Lacy, the governor’s spokesman, said hiring freezes and furloughs, or the unpaid time Schwarzenegger forced employees to take, combined to inflate accruals of vacation and leave. Lacy said the expiration of Brown’s version of the furloughs at the end of June will help reduce the balances.

Employees are told they must take unpaid furlough days before using paid vacation. That has boosted the backlog of unused leave, especially at agencies with round-the-clock operations.

Other states have taken steps to limit vacation payouts. New Jersey caps checks for departing state employees at $15,000, and New York limits payment of accrued time to 30 vacation days. Most New York employees may accrue 200 sick days, which can be used to offset retiree health-care premiums.

Overtime Millions

California also leads in overtime expenses, data compiled by Bloomberg show. Last year, it paid $964 million in overtime to 110,000 workers, an average of $8,741 per employee. That was more than twice the $415 million New York paid in overtime to 80,000 staff members, for an average of $5,199, and almost as much as all the other states in the database combined. In Georgia, total overtime for 8,935 workers last year was $12.3 million, an average $1,378.

California employees generally make at least 1.5 times their regular pay to work overtime. The state’s overtime costs show mismanagement by the officials who run state departments, said former Georgia Governor Roy E. Barnes, a Democrat.

“Government is no different from business; you have to have good leaders,” Barnes said in a telephone interview. “When you have somebody having that amount of overtime, then there’s not good management control, there’s not good leadership.”

Highway Patrol

The California Highway Patrol, whose brown-and-tan uniforms and weekly adventures in the 1970s and 1980s lit up television screens in the series “CHiPs,” also boasts leading pay and benefits.

The best-paid among the patrol’s sworn and uniformed employees make far more than those in other states, with overtime and lump-sum payouts that enlarge earnings, data compiled by Bloomberg show.

Former division chief Jeff Talbott retired last year from the California Highway Patrol as the best-paid trooper in the 12 largest U.S. states, with $483,581 in salary, pension and other compensation. Talbott declined a request to be interviewed.

While California’s cost of living and relatively high private-sector pay account for some of the disparities in public payrolls, special circumstances in the Golden State combined to drive wages and benefits to levels far beyond other states, data show.

‘Arduous Duty’

Unions pressed for every perk they could squeeze out of governors and their department managers — including “arduous- duty” pay for office workers and special bonuses for call- center employees “in recognition of the complex workload and level and knowledge required to receive and respond to consumer calls,” state documents show.

Most public employees aren’t overpaid, and differences in compensation can be tied to regional labor markets, whether some states prefer delivering services at the local level and whether they have adequate staffing, said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees.

“I don’t think there’s this kind of huge disparity as if somehow they’re being overpaid and taking advantage of the systems,” Kreisberg said in a telephone interview from Washington. “This is earned money.”

California has one of the leanest public workforces in the country in terms of the number of state employees per resident, said Lacy, Brown’s spokesman. Measuring the payroll of its state workers per capita, excluding university employees, California ranks third-highest among the 12 largest states, according to data compiled by Bloomberg and the U.S. Census Bureau.

The California payroll totals reflected in the Bloomberg data have their roots in wage negotiations carried out during Davis’s time as governor.

Pension Limits

One of the first goals of state employee unions when Davis took over in 1999 after 16 years of Republican governors was to unwind curbs on pensions put in place by Governor Pete Wilson in 1991. Workers also wanted broad wage increases.

Unions persuaded the California Public Employees’ Retirement System to sponsor legislation called Senate Bill 400, which sweetened state and local pensions and gave retroactive increases for tens of thousands of retirees. Highway-patrol officers were granted the right to retire after 30 years of service with 90 percent of their top salaries, a benefit that was copied by police agencies across the state.

California’s annual payment toward pension obligations ballooned to $3.7 billion in the current fiscal year from $300 million when the bill was enacted. Some cities that adopted the highway-patrol pension plan later cited those costs for contributing to their bankruptcy filings.

Pay Increases

Davis and the Legislature also agreed to labor contracts that gave 164,000 state workers pay increases of 4 percent in 1999 and again in 2000. Those contracts cost the state an extra $1.3 billion within a year, according to the state’s independent Legislative Analyst’s Office.

There were more to come.

After technology stocks plummeted in 2000, cutting tax revenue, Davis asked state workers to postpone additional raises.

In lieu of immediate increases, Davis and the California Legislature agreed to link highway patrol pay to an average of the five biggest law enforcement agencies in the state. The result: escalating raises that came due after Davis left office. Officers’ pay rose 2.7 percent in fiscal 2004, 12.1 percent in fiscal 2005 and 5.6 percent and 5.7 percent in the following years, according the Legislative Analyst’s Office.

Aiding Recruitment

The pay boosts were needed to help bring more officers to the agency at a time it couldn’t fill all its cadet positions, said Jon Hamm, chief executive officer of the California Association of Highway Patrolmen, the union for CHP officers.

“At the time we accomplished our biggest gains, I actually felt I was losing the recruitment war,” Hamm said in an e- mailed statement. “I think it is clear that when our biggest gains were negotiated I did not feel they were ‘excessive;’ in fact, almost the opposite was true.”

The wage increases help explain disparities in the data compiled by Bloomberg in which many California highway patrol officers now earn much more than counterparts in other states. For example, 45 California officers earned at least $200,000 in 2011, compared with nine in other states — five in Pennsylvania and four in Illinois, according to the data. While more than 5,000 California troopers made $100,000 or more in 2011, only three in North Carolina did, the data show.

Guards Follow

The pay deal for the California Highway Patrol got the attention of the state’s politically potent prison guards’ union, which successfully lobbied to have its compensation tied to that of state troopers.

The result was a pay increase of more than 30 percent for members of the union over the five-year contract. The state’s auditor, Elaine Howle, in July 2002 estimated the contract cost taxpayers an extra $500 million a year.

The prison guards’ union gave Davis more than $3 million for his various elections, including $250,000 a few weeks after the pay increase was negotiated, campaign records show.

California had almost 11,000 workers in the Department of Corrections and Rehabilitation who made $100,000 or more in 2011, and about 900 prison employees earning more than $200,000 a year, data compiled by Bloomberg show. New York had none. Its top-paid officer is a sergeant at Sing Sing Correctional Facility who made $170,000 last year.

Deficit Balloons

Davis had taken office in 1999 with a $12 billion budget surplus. Four years later, he began his second term by reporting a $35 billion budget deficit — about $1,000 for every man, woman and child in the state.

Davis was recalled in October 2003 amid criticism of the deficit, his handling of an energy crisis that saw power prices soar and political contributions from public-employee unions, technology companies and others.

After Davis left, lawsuits over the quality of care for prison inmates and patients of state mental-health hospitals rapidly elevated pay for doctors, dentists, nurses and psychiatrists.

In 2005 and the years that followed, a federal court took over prison health care and took steps that included reducing the time inmates had to wait for treatment.

That, combined with a crowded prison population, increased the workload and demand for nurses even as a shortage nationwide left the state with vacancies.

Union Rules

Union-negotiated rules required state departments to handle the extra work by offering overtime to California nurses before bringing in contract nurses from private companies. The requirement led to a greater reliance on overtime for nursing in California than in any other state, one that persists to this day.

Nurses in California last year made $673 million in total pay, including $103 million in overtime, or 15.3 percent. By contrast, those in New York made $561 million in total pay, of which almost $40 million was in overtime, or 7.1 percent.

Forty-two nurses in California’s prisons and mental hospitals have reaped especially rich overtime payouts. They made an average of $1.3 million each during the seven years, including $674,000 in overtime.

The highest-paid nurse in the seven years was Lina Manglicmot, who worked at a state prison in Soledad, about 130 miles (209 kilometers) south of San Francisco. She collected $1.7 million from 2005 through 2011, including $1 million in overtime, the data show. Manglicmot declined to comment.

Wage Concessions

Curbing the compensation of California employees eluded Schwarzenegger through two terms as he tried to pry wage concessions back from their unions.

In 2009, he responded to a growing financial crisis by imposing furloughs, or a mandatory unpaid day off each month, for all state workers. The forced time off later grew to three days a month.

Furloughs depressed regular wages while increasing overtime compensation for employees, such as prison guards, who had to work through them. The first six months of the furloughs, for instance, cost California $52 million in accrued vacation time for prison guards alone, according to findings by the state Senate Office of Oversight and Outcomes.

The furloughs led to backlogs of vacation time for other state workers as well, in violation of state rules. California stipulates that workers shouldn’t accumulate more than 640 hours of vacation or personal leave.

Forced Furloughs

“Furloughs were never meant to solve the state’s structural budget problem or save money in the long run,” Schwarzenegger said. “We had to do what was necessary to keep paying the bills and keep the lights on.”

More than 111,000 government employees working for the 12 most populous states collected $710 million in leave payouts last year, the data show. California workers accounted for almost 40 percent and have collected about $1.4 billion since 2005. The payouts have more than doubled in California in the past seven years.

“Those kinds of payments, they are absolutely inappropriate and we are doing everything we can to make sure it doesn’t recur,” said Morgenstern, the state’s labor secretary.

Public employee unions have made some concessions at the bargaining table, such as contributing as much as 5 percent more of their earnings toward pensions, and forgoing overtime pay for some holidays. State worker furloughs under Schwarzenegger amounted to a 15 percent pay cut; under Brown, they’ve been about 5 percent.

Yet the legacy of California’s collective bargaining, budget battles and court struggles over inmate care continue to elevate its payroll, data compiled by Bloomberg show.

Allowing that to happen was a mistake, and taxpayers will be dealing with it for years, said Bob Stern, president of the nonpartisan Center for Governmental Studies in Los Angeles.

“The labor unions really called in their chits, and Davis went along with it,” Stern said by telephone. “In hindsight, they should not have done it, because they made future generations pay for the benefits they approved.”

To contact the reporters on this story: Mark Niquette in Columbus at [email protected]; Michael B. Marois in Sacramento at [email protected]; Rodney Yap in Los Angeles at [email protected]

To contact the editor responsible for this story: Jeffrey Taylor at [email protected]

[UCGal]

CA is not the only state with overcompensated employees.

Tennessee is paying $7.5M to Auburn university football coach they fired. (Chizik) He was a state employee.
His predecessor, Tuberville, was paid $5.1M upon leaving.

These were state employees since Auburn is a state university.

Not saying any of it is right. Just saying CA isn’t the only screwed up state.

[SD Realtor]

It is good to be the best at something though!

[EconProf]

This meaty article will prompt many pro and con contributions by Piggs. It is a healthy debate to have, since our fiscal future and our state’s economy depends upon it.
The question is whether state employees are overcompensated or not compared to similar private sector occupations. While many dueling statistics can be brought forth by both sides, I’d like to pose one question: What is the quit rate for public sector workers compared to similar private sector workers?
I’ve heard that the public sector workers almost never quit, suggesting that they know they have a good deal. But that’s only anecdotal. Any Piggs have any statistics?

[no_such_reality]

Econprof, you are so wrong. The denial is too deep on this issue.

[UCGal]

Only anectdotal.

I’ve been with my same employer for almost 18 years. Private sector. The corporate name has changed a bunch of times (bought, split, bought again, now for sale again.) Most of my work group have been here 7 years or longer. Several have tenures that make me seem like a newbie.

Neighbor went to work for the county. Lasted 1 year before he ran screaming back to the private sector.

Dad worked private sector – 32 years with his last employer.
Mom worked for the county – 20 years total under two agencies.

Brother worked private sector to start (20 years) with an average tenure of 3-5 years, then went to work for the state (not Cali) – and was laid off after 2 years. (unrelated – he died shortly after that.)

Lots of costco employees at my local costco have been there since it was Price Club (started in the 80’s)

I’d love to see hard data on this. I don’t see any trends when looking around my friends and family.

[SK in CV]

[quote=UCGal]
Lots of costco employees at my local costco have been there since it was Price Club (started in the 80’s)

[/quote]

It’s been there even longer than you think. I got my first card in August of ’76. I don’t think it was open for more than month. Just ran out of the 12,000 paper plates I bought on that first trip.

[UCGal]

LOL.
I know my mom joined price club in the 70’s. But back then you had to have an employer connection. My mom worked for the county -so that was her connection. This was still true for price club and later costco until about 1990 if memory serves.

One of my regular cashiers there worked at price club during college because they had tuition reimbursement. She graduated and looked around for her “professional” career… none paid as well, offered as good of bennies. She’s been there since about 1981. I think there are a lot of employees like her.

[bearishgurl]

[quote=EconProf]I’ve heard that the public sector workers almost never quit, suggesting that they know they have a good deal. But that’s only anecdotal. Any Piggs have any statistics?[/quote]

EconProf, I don’t know about recent years (since unemployment has been higher in SD). But in the past, there WAS a big danger of losing an employee who has already spent 6 mos to 1 yr (depending on position), on probation and “training.” These were employees who were not yet vested, which took five years (with no LWOP or State Disability Leaves in that five years which were not paid back).

There is an abyss of hoops to jumps thru (and putting up with a load of BS that goes along with that jumping) between an employee’s hiring and vesting, much moreso when on probation. And every time an employee changes classifications (even if a “lateral” move), they are put back on “probation.” It is not uncommon for a public employee to serve 2-3 probationary periods back to back. This in no way implies they will be treated “fairly” while serving a probation.

Employees who were hired with marketable degrees/skills tend to defect before vesting. The danger of staying and vesting (even losing 3-4 years of an employees prime working years) is that they will use a computer on whichever agency they work for’s “network” day in, day out which is entirely proprietary to that agency. The procedures they have to follow day in, day out are also proprietary to that agency. Hence, the need to serve a *new* probationary period at each agency they go to. Many of the job classifications are proprietary to one agency only. After 3-4 years on the job, even if an employee WANTS to get out and work in a “private” job, their resume is now full of duties which have no value to private employers. Especially if their gov position was their first “real” job, a gov employee would very likely have to take a big downgrade in pay if they quit and took a position in the private sector.

After five years, vacation and sick leave accurals typically increase, making it harder to find a gig with even close to similar benefits elsewhere.

One thing private sector employees have over public sector employees is more freedom on the job, namely:

-freedom to visit websites they want to on the “company” computer (within reason);

-ability to telecommute (don’t have taxpayers coming in for services or have to see the agency’s “clients” day after day. And agency’s computers/proprietary information isn’t allowed to be taken home);

-and, don’t have to follow a strict dress code (ex. courts and taxpayers expect professional attire at all times).

Even AFTER vesting, there isn’t a great deal of incentive to work year after year in the public sector unless the public employee just LOVES their duties, their clients, their bosses/coworkers, etc. If they have skills which could get them hired in the private sector immediately (and the job market is such that they can), they often DO quit. The amount each year their pension grows is minuscule in proportion to the hoop-jumping, politics and other BS they have to put up with on a daily/weekly basis year after year.

The above applies to “rank and file workers” who obtained their positions by scoring on an examination and are protected by civil service rules. These employees are the vast majority of government workers.

The above does NOT apply to executive-level workers or officials who are brought in on interviews and reference checks alone (often from another city, county or state and perhaps even from the private sector), and who hammered out their contacts out with the public hiring agencies. These workers have no civil service protection and can (and often do) sue for breach of contract if they are let go before their contract expires. Hence the massive payouts in the OP, which were either in these employees’ contracts to begin with, or paid a lump sum to an employee to get rid of them early (settlement of breach of contract).

I CAN tell you that governments NEVER pay out humungous sums for former employees unless said employee has them over a barrel in some way! Here are three examples where they WOULD pay out but there are several more:

The employee had an ironclad, enforceable contact with the agency to get paid a certain sum over a certain period of time and the agency decides to terminate it early (for any reason);

their own employees made HUGE, GLARING and embarrassing mistakes with said employee;

or, an employee can properly substantiate in a government tribunal or court of law substantial fraud, waste or abuse perpetrated by any officer or employee of said agency, informed their supervisor and/or agency head and the agency PTB looked askance at the complaint(s) and actually retaliated against said informer (whistleblowing statute or qui-tam action filed).

In fact, the opposite is true. Every single government has a passel of attorneys on staff who do NOTHING every day but fight off monetary claims coming from ouside AND inside the agencies of the jurisdiction they represent. The small governments contract out this function to private law firms, but nevertheless, they operate in much the same way as attorneys representing insurance companies, except public entities are “self-insured” (excluding worker’s comp coverage).

If these agencies are “stuck” and/or don’t want a bright flashlight shown to the public on a particular issue (don’t want the press to get wind of it), and/OR they can’t possibly win in court, they’ll quietly pay an employee to “go away” but not without an indefinite “gag order” as part of the deal.

The payouts come out of the following year’s budgets of said offending agencies, as do their “attorney fees.” This often results in “billets” being removed from their budgets (cuts in staff resulting in layoffs or unfilled vacancies dropping from their staffing list).

There is always much more to these large payouts (upon an employee’s termination/retirement of a government job) than meets the eye.

[bearishgurl]

[quote=UCGal]Only anectdotal. . . .

Neighbor went to work for the county. Lasted 1 year before he ran screaming back to the private sector. . . . [/quote]

LOL, UCGal! I have a (young) neighbor who did this, too. I think it’s a Gen Y trait. This generation has infinitely less patience in dealing with “BBH” (Bureaucracy, Bullshit, and Hierarchy) than previous generations. :=]

[livinincali]

[quote=EconProf]
I’ve heard that the public sector workers almost never quit, suggesting that they know they have a good deal. But that’s only anecdotal. Any Piggs have any statistics?[/quote]

Teachers are a pretty decent place to look. The NCTAF says that about 50% of teacher turn over in the first 5 years, but the total turn over is only 16.8%. So once you get past that first 5 years the turnout must get really low to balance out the stats. Here’s an article that talks about public school vs charter school turnover http://latimesblogs.latimes.com/lanow/2011/07/los-angeles-charter-schools-have-high-teacher-turnover.html

My thought is that once you get to about year 5 the benefit package becomes too good to give up. In addition your pay is probably competitive for the skill set you have. Honestly where is a 10 year veteran teacher going to make $50K+ plus generous benefits in the private sector for their skill set. Charter schools aren’t paying that, tutoring services aren’t paying that and most entry level jobs in other fields aren’t paying that. The only competition is another school district.

I think that’s true for a lot of public sector jobs. Most public sector jobs have a skill set that is not in competition with a private sector job. The competition is with another public sector job.

[sjk]

[quote=bearishgurl][quote=EconProf]I’ve heard that the public sector workers almost never quit, suggesting that they know they have a good deal. But that’s only anecdotal. Any Piggs have any statistics?[/quote]

EconProf, I don’t know about recent years (since unemployment has been higher in SD). But in the past, there WAS a big danger of losing an employee who has already spent 6 mos to 1 yr (depending on position), on probation and “training.” These were employees who were not yet vested, which took five years (with no LWOP or State Disability Leaves in that five years which were not paid back).

There is an abyss of hoops to jumps thru (and putting up with a load of BS that goes along with that jumping) between an employee’s hiring and vesting, much moreso when on probation. And every time an employee changes classifications (even if a “lateral” move), they are put back on “probation.” It is not uncommon for a public employee to serve 2-3 probationary periods back to back. This in no way implies they will be treated “fairly” while serving a probation.

Employees who were hired with marketable degrees/skills tend to defect before vesting. The danger of staying and vesting (even losing 3-4 years of an employees prime working years) is that they will use a computer on whichever agency they work for’s “network” day in, day out which is entirely proprietary to that agency. The procedures they have to follow day in, day out are also proprietary to that agency. Hence, the need to serve a *new* probationary period at each agency they go to. Many of the job classifications are proprietary to one agency only. After 3-4 years on the job, even if an employee WANTS to get out and work in a “private” job, their resume is now full of duties which have no value to private employers. Especially if their gov position was their first “real” job, a gov employee would very likely have to take a big downgrade in pay if they quit and took a position in the private sector.

After five years, vacation and sick leave accurals typically increase, making it harder to find a gig with even close to similar benefits elsewhere.

One thing private sector employees have over public sector employees is more freedom on the job, namely:

-freedom to visit websites they want to on the “company” computer (within reason);

-ability to telecommute (don’t have taxpayers coming in for services or have to see the agency’s “clients” day after day. And agency’s computers/proprietary information isn’t allowed to be taken home);

-and, don’t have to follow a strict dress code (ex. courts and taxpayers expect professional attire at all times).

Even AFTER vesting, there isn’t a great deal of incentive to work year after year in the public sector unless the public employee just LOVES their duties, their clients, their bosses/coworkers, etc. If they have skills which could get them hired in the private sector immediately (and the job market is such that they can), they often DO quit. The amount each year their pension grows is minuscule in proportion to the hoop-jumping, politics and other BS they have to put up with on a daily/weekly basis year after year.

The above applies to “rank and file workers” who obtained their positions by scoring on an examination and are protected by civil service rules. These employees are the vast majority of government workers.

The above does NOT apply to executive-level workers or officials who are brought in on interviews and reference checks alone (often from another city, county or state and perhaps even from the private sector), and who hammered out their contacts out with the public hiring agencies. These workers have no civil service protection and can (and often do) sue for breach of contract if they are let go before their contract expires. Hence the massive payouts in the OP, which were either in these employees’ contracts to begin with, or paid a lump sum to an employee to get rid of them early (settlement of breach of contract).

I CAN tell you that governments NEVER pay out humungous sums for former employees unless said employee has them over a barrel in some way! Here are three examples where they WOULD pay out but there are several more:

The employee had an ironclad, enforceable contact with the agency to get paid a certain sum over a certain period of time and the agency decides to terminate it early (for any reason);

their own employees made HUGE, GLARING and embarrassing mistakes with said employee;

or, an employee can properly substantiate in a government tribunal or court of law substantial fraud, waste or abuse perpetrated by any officer or employee of said agency, informed their supervisor and/or agency head and the agency PTB looked askance at the complaint(s) and actually retaliated against said informer (whistleblowing statute or qui-tam action filed).

In fact, the opposite is true. Every single government has a passel of attorneys on staff who do NOTHING every day but fight off monetary claims coming from ouside AND inside the agencies of the jurisdiction they represent. The small governments contract out this function to private law firms, but nevertheless, they operate in much the same way as attorneys representing insurance companies, except public entities are “self-insured” (excluding worker’s comp coverage).

If these agencies are “stuck” and/or don’t want a bright flashlight shown to the public on a particular issue (don’t want the press to get wind of it), and/OR they can’t possibly win in court, they’ll quietly pay an employee to “go away” but not without an indefinite “gag order” as part of the deal.

The payouts come out of the following year’s budgets of said offending agencies, as do their “attorney fees.” This often results in “billets” being removed from their budgets (cuts in staff resulting in layoffs or unfilled vacancies dropping from their staffing list).

There is always much more to these large payouts (upon an employee’s termination/retirement of a government job) than meets the eye.[/quote]

Have a read…….

http://online.wsj.com/article/SB10001424052748704657704576149941061124736.html
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By ANDREW BIGGS AND JASON RICHWINE

Leaders across the country are proposing restrictions on public employees’ pay and benefits in order to put their budgets on a more sustainable path. The political left’s counterattack is that government workers aren’t overpaid compared to those in the private economy. Who’s right?

Consider a study released last October by the Center on Wage and Employment Dynamics at the University of California, Berkeley, which concluded that Golden State public employees “are neither overpaid nor overcompensated.” The Economic Policy Institute has generated reports arguing that government workers are underpaid.

These studies are misleading. Public-private pay comparisons vary from state to state, but a full accounting shows clearly that large, union-dominated states tend to overpay their workers. California is a good example.

The Berkeley study begins by studying salaries, where its methods are solid. Using individual-level data from the Census Bureau’s Current Population Survey, it compares public and private wages while controlling for differences in age, education and other earnings-related characteristics. Using essentially the same methods, we found that California state and local government employees receive wages about 4% lower than those received by similarly skilled workers in large private firms, which offer the most generous pay and benefits. But if we compare public employees to all private workers, the 4% penalty becomes statistically zero.

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Public employees really pull ahead in non-wage benefits.

Slideshow: Teachers Revolt

Public employee protests spread across the Midwest.

Public employees really pull ahead in non-wage benefits. The Berkeley study concludes that counting benefits means that public workers’ total hourly compensation is about 2% higher than that of private workers. But our research shows that the study underestimates what public workers receive from pensions and retiree health programs. It also doesn’t account for the value of job security in government employment. Once these are noted, the balance tilts clearly in favor of public workers.

The first error in the Berkeley study concerns defined-benefit pension plans. The study erroneously conflated what governments pay into defined-benefit plans with what workers will eventually receive in retirement. So if governments contribute 10% of employee pay to defined-benefit pensions while private employers contribute 10% to 401(k)-type pensions, these studies conclude that pension compensation is equal.

But here’s the problem: State and local pensions effectively guarantee employees an 8% return on both their contributions and those made by their employer. By contrast, a private-sector employee with a 401(k) can achieve a guaranteed return of only around 4% by investing in U.S. Treasury securities. Most economists believe governments are foolish to base their funding decisions on the assumption of high investment returns, but the benefits for public employees are guaranteed in any case.

Over a career, the difference between a 4% and 8% return is significant. Using data from California’s major pension funds, we calculate that the higher implicit return on public pensions increases the compensation of California’s government workers by around 4%.

The Berkeley study’s second error is the omission of retiree health benefits. Private workers retire later and relatively few receive retiree health coverage. For those who do, eligibility has been tightened and premiums increased. But almost 90% of state and local governments offer retiree health benefits to employees. They generally retire in their 50s, at which point the government often pays most of their costs, including Medicare premiums and deductibles.

State actuarial reports show the annual cost of California retiree health benefits could top 8% of total compensation. Thus an accurate accounting of pension and retiree health benefits shows that public employees in California are paid about 15% more than individuals working for large private firms (accounting for age, education, etc.).

Another major benefit of public employment is job security. The Bureau of Labor Statistics reports that, on average, a private worker has about a 20% chance of being fired or laid off in a given year. In state and local government, the discharge rate is only about 6%—and several studies have found that public employees are more risk-averse than other workers, meaning they place particular value on job security. We estimate that government job security is equivalent to about a 15% increase in compensation.

Overall, our research suggests that government workers in California are compensated up to 30% more generously than are similar employees in large private firms. And the California experience is similar to that of other large states with powerful public unions. Elected officials are right to reassess public worker compensation as they try to close their budget deficits.

Mr. Biggs is a resident scholar at the American Enterprise Institute. Mr. Richwine is a senior policy analyst at the Heritage Foundation.

[sjk]

[quote=EconProf]This meaty article will prompt many pro and con contributions by Piggs. It is a healthy debate to have, since our fiscal future and our state’s economy depends upon it.
The question is whether state employees are overcompensated or not compared to similar private sector occupations. While many dueling statistics can be brought forth by both sides, I’d like to pose one question: What is the quit rate for public sector workers compared to similar private sector workers?
I’ve heard that the public sector workers almost never quit, suggesting that they know they have a good deal. But that’s only anecdotal. Any Piggs have any statistics?[/quote]

This has some data, I think the gap has become much wider in the last few years…

http://www.heritage.org/about/staff/departments/center-for-data-analysis/models-and-data

Regards,

Are California Public Employees Overpaid?

Heritage Foundation Working Paper (comments welcome)

Jason Richwine ([email protected])
Andrew Biggs ([email protected])

Introduction

Public-private pay comparability has become a major political issue in the past year, with some claiming that public workers are overpaid and others claiming they are paid too little. An important aspect of this debate is the difference between federal workers on the one hand and state and local workers on the other. Although federal workers earn higher wages and benefits than comparable private workers, the state-local situation is more complicated. Compared to private workers, state-local workers tend to earn less in wages but more in benefits. The net impact on overall pay is controversial.

The Center on State and Local Government Excellence, the Center for Economic and Policy Research, the Economic Policy Institute, and the Center on Wage and Employment Dynamics (CWED) have all released similar studies arguing that the wage penalty and benefit premium for state-local workers either cancel out or tilt in favor of private workers.

While these studies more or less properly measure wage differences, none of them considers the full benefit premium enjoyed by state-local workers. A full accounting of benefits needs to include retirement healthcare, job security, and pension funding using the proper private sector discount rate. After including these missing pieces of the benefits pictures, we find that state-local compensation is substantially higher than previous estimates.

Because state-level data varies widely in quality and availability, it is still difficult to say whether state-local workers are overpaid on a national level. This paper focuses exclusively on public workers in California, a large state with reasonably good benefits data. Because the authors of the CWED report also focus on California, we contrast our methods and results with theirs throughout this paper.

CWED concluded that California public workers are not overpaid. However, we find that CWED’s analysis of benefits leads to a substantial understatement of state-local compensation in California. With a more complete accounting of benefits, public employees in California in fact earn up to 30 percent more in total compensation than comparable private sector workers.

Wages

Our public-private wage comparison is very similar to CWED’s. We use the same dataset and the same basic regression analysis.

Data and Methods. We averaged the 2006 through 2010 years of the Current Population Survey. The five-year average is more representative of recent trends in government pay, and the larger sample size allows us to add more detailed control variables.

We used the Annual Demographic Supplement of the CPS, which contains information on annual earnings. The analysis is limited to adult civilians working full-time for a wage or a salary during the whole previous year.

We dropped workers with imputed earnings, since the imputation process does not take government status into account. People with annual earnings less than $9,000 were also dropped.

In addition to dummy variables for federal, state, and local government employment, we used the following controls: usual hours worked per week, experience (age – education – 6), experience-squared, years of education, firm size (6 categories), broad occupation (10 categories), immigration status, race, gender, marital status, and year dummies to account for inflation. We also included interaction terms: experience x education, experience-squared x education, marital status x gender, and gender x race.

Choice of Controls. Most control variables in wage regressions are uncontroversial, but there is some debate among economists over whether to include certain ones. For example, our inclusion of firm size means that California state workers are compared only to workers at large firms (1,000+ employees), which tend to pay higher salaries than smaller firms.

Since firm size is a characteristic of employers rather than employees, this is controversial. Some argue that larger firms tend to pay higher wages because they are more successful, that a state government cannot be “successful” in any market sense, and therefore that a firm size control is inappropriate. However, working at a large firm reflects to some extent an employee’s preferences for whatever characteristics large firms tend to exhibit. If state-local workers quit in favor of private sector jobs, they would likely choose a private firm that is above-average in size. For that reason, we believe controlling for firm size is the better choice for both wages and benefits. Excluding the firm size control would make the observed state and local wage penalties substantially smaller than what we are reporting here.

Some economists also control for union status, but we do not feel that is appropriate. Collective bargaining drives up wages, and California’s decision to allow state workers to unionize is essentially another means of boosting compensation. One could argue that union membership, like firm size, is also a state worker’s revealed preference that he would continue to seek in the private sector. Unlike firm size, however, this preference could be driven mainly by the higher wages and benefits of unionized labor, which should be included in the state-local premium. Controlling for union status would likely raise our estimate of the wage penalty but would not change any of our conclusions.

The CWED report includes firm size but excludes union status, just as we do.

Results and Conclusion. Results of the regression are displayed in Table 1. The first column lists key independent variables, and the second column shows the percentage increase in wages associated with a one unit increase in each variable. For example, an additional year of education leads to a 9.9 percent increase in wages, all else equal.

Table 1: Wage Regression Results, 2006-2010.
Control Variable Coefficient (%)
hours worked per week 1.7
experience (in years) 3.9
education (in years) 9.9
foreign-born -11.4
married 18.0
black -16.6
Hispanic -10.7
woman -14.0
federal worker 4.8
state worker -10.2
local worker -0.6
Observations 25,576
Adjusted r-squared 0.506
Note: All coefficients significant at the 95 percent level or higher, except local worker. Additional controls not shown; see text for details.

Source: Authors’ calculation from Current Population Survey.

The most important variables in the list for our purposes are state and local government status. After controlling for observable skills and a detailed list of personal characteristics, state workers in California earn about 10.2 percent less in wages than private sector workers. Local workers see a much smaller, statistically insignificant penalty of 0.6 percent. Combining state and local workers together yields a significant penalty of 3.7 percent (not shown in the table).

Benefits

Our results for wages are similar to CWED’s, but we begin to diverge with benefits. We first review the “standard” benefit calculations used by CWED and other groups, and then we describe the omitted or undercounted portions.

“Standard” Benefit Calculation. The Bureau of Labor Statistics (BLS) publishes benefit/wage ratios for private and state-local workers collected through the Employer Costs for Employee Compensation (ECEC) survey. These figures include: paid leave, such as vacation, holiday or sick pay; supplemental pay, such as overtime and bonuses; insurance, such as life and health coverage; retirement and savings, which includes employer contributions to defined benefit and defined contribution pension plans; and legally required benefits, such as Social Security and Medicare payroll taxes.

In the Pacific Census region, which includes California, benefits for state-local employees were 55.5 percent of wages (or 37.5 percent of total compensation). For private sector workers in large firms, benefits equaled 50.3 percent of wages or (33.5 percent of compensation). BLS does not release state-specific data due to small sample sizes. If California has more generous public sector benefits than other states in the region, which is likely given our review of the pension and retiree health data, then the BLS Pacific Region figures may slightly understate total California compensation.

Omitted or Undercounted Benefits. We possess employee benefit data at nowhere near the level of detail that we have for salaries with the CPS. Given the limitations of BLS data on employee benefits, the CWED and other studies do a reasonable job of approximating total employee compensation. However, the CWED and other studies omit or understate two important benefits for public sector employees: retiree health care and defined benefit pensions.

Retiree Health Benefits. The existing studies omit retiree health benefits, which are not included in BLS compensation data as there are no payments to active employees. For private sector workers this omission is generally unimportant—private workers retire later, relatively few private workers receive retiree health coverage, and eligibility has been tightened and premiums increased for those who do. In contrast, almost 90 percent of state and local governments offer retiree health benefits to employees who retire in their 50s, with the government paying much of their costs, often including Medicare premiums and deductibles. State actuarial reports show the annual accruing costs of California retiree health benefits equal approximately 6.5 percent of total compensation.

Moreover, even these actuarial figures will understate the true value of retiree health coverage. The reason is that that the costs of coverage are calculated as the amount by which retiree coverage increases costs to the employer plan by increasing the average age of the covered population. However, there is an additional subsidy to the retiree as he otherwise would have to purchase coverage in the individual health market, which is approximately 25 percent more expensive for a given policy than group coverage. Thus, the true subsidy to the individual is the employer cost plus the cost difference between individual and group health coverage. In this case, the total subsidy would equal approximately 8.125 percent of total compensation.

Controlling for Pension Discount Rates. An important difference between public and private sector employment is the predominance of traditional defined benefit (DB) pensions in the public sector versus 401(k)-type defined contribution (DC) plans in the private sector. All pay comparisons to date have failed to accurately capture certain important distinctions between the two.

Employer contributions to pensions are only a proxy by which we infer the value of an actual future pension benefit. To accurately infer that value, we must consider both the size of the employer contribution and the implicit rate of return paid on it from the time of payment through the time the benefit is received.

For DC pensions, the return on contributions is straightforward. Individuals may invest employer contributions as they choose, in assets with a mix of risk and return they find optimal. For comparability with DB pensions, which are generally riskless to the employee, we assume that individuals invest DC assets in guaranteed U.S. Treasury securities, currently yielding around 4 percent annually over 20 years.

For DB plans, however, the implicit rate of return on contributions is a function of the plan’s benefit formula. This return can differ from person to person, but on average it will equal the discount rate or assumed investment return for the program as a whole.

In private sector DB plans, the discount rate equals the interest rate on a portfolio of high quality corporate bonds. Currently, such a portfolio yields approximately 5.5 percent. State and local pensions generally assume a discount rate of 8 percent, based on the expected return on assets held by the fund. This means that the employer contribution today is equal to the eventual benefit discounted back to the present at a 5.5 or 8 percent interest rate. Put another way, it means that public sector employees receive a guaranteed return of 8 percent on their employers’ pension contributions.

If we compare only the size of employer contributions while excluding the implicit return, we will understate true compensation delivered through DB pensions. To account for this, we calculate an adjustment factor to defined benefit pension contributions to account for how different annual rates of return compound over time. Most participants in defined benefits plans do not have a full career under such plans prior to retirement. In the state-local sector, it is common for employees to have approximately 25 years of service prior to retirement. We will assume the same length of service for all employees with DB pensions. We estimate the effect of different implicit rates of return by compounding over one-half the assumed number of service years for the employee.

The adjustment factor equals:

,

where the expected return equals 5.5 percent (private) or 8.0 percent (state-local) and the riskless return is 4 percent. This factor, which is greater than 1 so long as the expected return exceeds the riskless return, is multiplied by each sector’s employer contribution to DB pensions. The resulting value equals the equivalent employer contribution were all workers to hold defined contribution pensions.

These factors are multiplied by the normal cost of California pension plans, which is the cost (as a percent of salaries) of benefits accruing in a given year. Based on a weighted average of normal costs for California’s major pension funds—CalPERS, CalSTRS, the University of California pension, and the pensions of city employees in Los Angeles, San Francisco and San Diego—we calculate that the higher implicit return on public defined-benefit pensions increases the compensation of California’s government workers by approximately 4 percent.
Job Security
The final factor we consider is job security. According to the BLS Job Openings and Labor Turnover Survey (JOLTS), a private sector worker has an approximately 20 percent chance of being fired or laid off in a given year while for state-local employees the probability is only 6 percent. This effectively gives federal employees an insurance policy against being discharged. Here we attempt to ascribe a value to that insurance.
Adam Smith in The Wealth of Nations originated the idea of what are today called “compensating wage differentials,” that is, changes to wages to balance the positive or negative characteristics of jobs. Smith explains how this applies to the risk of unemployment:
Employment is much more constant in some trades than in others. In the greater part of manufactures, a journeyman may be pretty sure of employment almost every day in the year that he is able to work. A mason or a bricklayer, on the contrary, can work neither in hard frost nor in foul weather, and his employment at all other times depends on the occasional calls of his customers. He is liable, in consequence, to be frequently without any. What he earns, therefore, while he is employed must not only maintain him while he is idle, but make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion…. The high wages of those workmen, therefore, are not so much the recompense of their skill as the compensation for the inconsistency of their employment.
Just as positions with a high incidence and duration of unemployment should pay a compensation premium, positions with greater job security – such as public sector employment – should pay less than otherwise similar jobs.
Theory. To estimate the value of job security on effective compensation, we calculate what in financial economics is termed a “certainty equivalent,” which represents a guaranteed payment which individuals would find equally attractive to a higher but uncertain payment. For instance, an individual might be willing to accept a guaranteed payment of $45,000 in lieu of a 50 percent chance of winning $100,000. The more risk averse individuals are, the lower the certainty equivalent is relative to the probability-weighed expected value of the risky payment.
In this case, we effectively ask how much lower salary a private sector worker would accept to have the job security of a public sector employee. To calculate this value, we begin with an isoelastic/CRRA utility function of the form

where u is the utility derived from consumption c, and ρ is the coefficient of constant relative risk aversion (CRRA). What this indicates is that the welfare generated by income will rise as income rises, but at a decreasing rate. Moreover, the rate at which the marginal utility of consumption declines increases with the risk aversion of the individual. A more risk averse individual will be willing to accept a lower certainty equivalent income, because the increase in expected utility by accepting employment risk is lower.
Data. Using this utility function, we first calculate the utility of total compensation for a worker assuming he retains his job full time, assuming total compensation of $85,000. We then calculate utility in the case the worker becomes unemployed, which involves assumptions regarding the duration of unemployment, the level of unemployment benefits, and the compensation of the new job the individual may find. For the baseline case, we assume a duration of unemployment of 19 weeks, unemployment benefits of $450 per week (the California maximum) and a current position pay premium of 15 percent, which is approximately the amount by which we calculate that California public sector compensation exceeds that paid to similar private sector workers. Using these assumptions, annual compensation in the event of unemployment is $54,400, for which we also calculate a utility value.
The expected utility is the weighted average of utility if the individual remains employed throughout the year and utility if the individual is discharged. In this exercise, we do not wish to calculate the salary reduction an individual would accept to have a zero probability of being discharged, but merely the difference between the private sector rate (20 percent) and the public sector probability (6 percent). Thus, we approximate by assigning a probability of discharge equal to the difference between the two (14 percent). Expected utility is equal to the weighted utilities of consumption assuming the individual is discharged (14 percent probability) or remains employed throughout the year (86 percent probability).
To calculate the utility of consumption we require a value for the risk aversion of public sector employees. We obtain this from Munnell et al (2007). Based on data from the Panel Study of Income Dynamics, they estimate a CRRA for public employees of 5.4, which is significantly higher than the estimate for private sector workers of 2.8. Other studies have concluded that public employees are more risk averse than private sector workers.
We derive the certainty equivalent compensation by calculating the riskless compensation whose utility would equal the expected utility of compensation under the risk of unemployment. This value is $73,840. The base compensation of $85,000 exceeds this value by approximately 15 percent, thereby generating our estimate of the job security compensation premium. Using a more conservative assumption that California workers, were they to work in the private sector, would have half the probability of becoming unemployed (perhaps due to their higher average education) the job security pay premium is around 5 percent.

Graphical Illustration. The intuition of the calculations may be more understandable using a simple chart. Figure 1 shows a stylized utility function, where the curved line shows the relationship between income (on the horizontal axis) and utility (on the vertical axis). Higher income generates more happiness, but at an ever-declining rate. Point A represents the income/utility if the individual keeps his job throughout the year, while Point B represents the income/utility should he lose his job. Point C, which lies between the two, represents the individual’s expected utility from his employment – that is, the probability weighted average of the utilities at Points A and B.
Point D lies to the left of Point C and represents the certainty equivalent income, that is, the compensation with zero probability of discharge that that would generate the same utility as the non-guaranteed compensation the individual currently receives.
Summary
Whether public sector employees receive greater or lesser compensation than similar private sector workers is an empirical question that demands analysis of salaries, benefits, and job security. In the case of California public employees, we find that salaries are slightly lower in the public sector. Initially, benefits appear only slightly higher, implying rough parity in public and private compensation. However, properly accounting for retiree health benefits and DB pensions generates a public compensation premium of around 15 percent. The additional job security granted to public sector employees is equivalent to an approximately 15 percent increase in compensation, meaning that the total public sector pay premium in California may be as high as 30 percent.

April 2010, at http://www.slge.org/vertical/Sites/%7BA260E1DF-5AEE-459D-84C4-876EFE1E4032%7D/uploads/%7B03E820E8-F0F9-472F-98E2-F0AE1166D116%7D.PDF (February 23, 2011).

John Schmitt, “The Wage Penalty for State and Local Government Employees,” Center for Economic and Policy Research, May 2010, at http://www.cepr.net/documents/publications/wage-penalty-2010-05.pdf (February 23, 2011).

Jeffrey Keefe, “Debunking the Myth of the Overcompensated Public Employee,” Economic Policy Institute, September 15, 2010 at http://epi.3cdn.net/8808ae41b085032c0b_8um6bh5ty.pdf (February 23, 2011).

Sylvia A. Allegretto and Jeffrey Keefe,“The Truth about Public Employees in California,” Center on Wage and Employment Dynamics, Institute for Research on Labor and Employment, University of California Berkeley, October 2010, at http://www.irle.berkeley.edu/cwed/wp/2010-03.pdf (February 23, 2011).

An interesting compromise position on firm size, which we may incorporate into future drafts, is used in: “The Economic Policy Institute is Wrong: Public Workers are Overpaid,” Center for Union Facts, February 22, 2011, at http://www.unionfacts.com/downloads/Public_Sector_UnionsBrief.pdf (February 23, 2011).

The overstatement would be small because of the size of California’s population relative to that of other states.

“State of California Retiree Health Benefits Program,” Gabriel Roeder Smith & Company, October 23, 2009, at http://www.sco.ca.gov/Press-Releases/2010/OPEB_February_2010.pdf (February 23, 2011).

Melinda Beeuwkes Buntin, José S. Escarce, Kanika Kapur, Jill M. Yegian, and M. Susan, “Trends and Variability in Individual Insurance Products,” Health Affairs, September 24, 2003.

Alicia H. Munnell, Kelly Haverstick, and Mauricio Soto, “Why Have Defined Benefit Plans Survived in the Public Sector?” State and Local Pension Plans Brief 2.Chestnut Hill, MA: Center for Retirement Research at Boston College, 2007.

Don Bellante and Albert N. Link, “Are Public Sector Workers More Risk Averse Than Private Sector Workers?”
Industrial and Labor Relations Review. Vol. 34, No. 3 (Apr., 1981), pp. 408-412.

At this point it is difficult to estimate probabilities and durations of unemployment for public sector workers, though we are investigating possible methods to do so.

[bearishgurl]

[quote=sjk]…Public-private pay comparability has become a major political issue in the past year, with some claiming that public workers are overpaid and others claiming they are paid too little. An important aspect of this debate is the difference between federal workers on the one hand and state and local workers on the other. Although federal workers earn higher wages and benefits than comparable private workers, the state-local situation is more complicated. Compared to private workers, state-local workers tend to earn less in wages but more in benefits. The net impact on overall pay is controversial….[/quote]

Civil service Federal jobs (thru GS-9/WG-9 levels) typically have ten pay steps, “maxing out” in 9.5 to ten years (depending on classification – some have 6 mos probationary period and some have one year). Thus, persons in Federal employment do not have to move around in order to get a raise, like state and local workers do. Ironically, it is easier for them to do so, by simply putting in a request for a new locale (for a lateral transfer in the same classification they are working in). This is done all the time, state to state and often in conjunction with military transfers of a spouse.

State and local civil service positions typically have 3-8 pay steps (avg of 5) in each classification. So at the 4.5 or 5-year mark, the employee is “maxed out” and can’t get a raise no matter how well they do on the job. They MUST get “promoted” to a higher classification (and serve a new probationary period) in order to advance … or stagnate in their positions. Many public employees don’t mind “stagnating” and do so voluntarily for many years simply for a particular work location and not wanting to serve another probationary period and for no other reasons.

If a local, state or Federal employee does NOT pass probation in the position they were promoted to, they have “bumping rights” back to the position they left, with no guarantees it will be in the same work location (but will be local to it). This happens all the time and the agency they promoted from is obligated to find them a “make work” position wherever they can, if they don’t currently have an opening in their classification.

It should be noted that “passing probation” is often political in nature and has absolutely nothing to do with prior experience, skills and abilities of the job at hand.

[bearishgurl]

As an aside, a Federal Employee has a GREAT benefit at their disposal called the “Thrift Savings Plan” or “TSP.”

Pre-Tax Dollars At Work

A Thrift Savings Plan is essentially a contribution plan for federal employees. Federal workers can contribute pre-taxed money into a number of savings accounts that can be matched by their employers if they meet specific qualifications. If employees are eligible for matching funds, their employer will be able to match up to 5 percent of their contributions. Members of the Civil Service Retirement System are not eligible for matching contributions. Withdrawal without penalty begins at age 70 1/2.

(emphasis added)

http://www.ehow.com/how-does_4681354_federal-thrift-savings-plan-work.html

The TSP plan is open only to FERS members (members of the Federal Employee’s Retirement System). Active Federal employee-members of CSRS (an annuity plan, NOT a pension) are dwindling fast. In order to have been a Federal employee under the CSRS Retirement System, an employee would have had to have began their Federal “career” prior to 1983, worked continuously since then, and never elected to convert to FERS.

http://en.wikipedia.org/wiki/CSRS

State and local governments typically don’t have funds-matching retirement plans. However, they are very popular with non-profits.

The TSP Plan is a GREAT supplement to FERS and is intended solely for income in old age.

[Author]

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