· October 20, 2011

The 43% Myth

The Ohio Business Roundtable recently released a report, coauthored with the conservative-leaning American Enterprise Institute, comparing the compensation of public and private sector workers in Ohio. The report claims that public workers make 2.5% less in wages than private sector workers, but when a variety of tangible and intangible benefits are factored in, public sector workers take home 43% more. The finding raised eyebrows, given another recent study by the Economic Policy Institute and a Rutgers University professor who found that Ohio’s public sector workers earn 6% less in total compensation than their private sector counterparts. What’s the difference? Amy Hanauer at Policy Matters points out a number of flaws in the BRT document. Among the concerns:

• First, the BRT assertion that public workers enjoy perks worth 87.7% of their salaries defies reality. Public sector budgets typically assume fringe benefit costs in the range of 33%, not 90%. If the study were true, public H.R. budgets would be considerably higher than they actually are.
• BRT adds 10% to public employee salaries for the benefit of “job security” they claim these workers enjoy. The number itself was artificially inflated by the researchers’ methodology, but also falsely suggests that this “benefit” costs taxpayers anything. If, as BRT asserts, public workers remain in their jobs longer, it actually saves employers money by not having to locate and train replacement workers as frequently.
• The authors arbitrarily reduce the value of contributions to social security on behalf of private sector workers while inflating the value of pension contributions for public workers.
• BRT also inflates the value of current contributions to public worker pensions by underestimating the rate of return, suggesting retirement benefits are somehow subsidized by the employer rather than paid for by the growth of investments.
• The authors falsely assume that all public workers receive health care benefits upon retirement, while conversely failing to account for the large number of private sector retirees with similar benefits; further, the authors double-count the value of retiree health benefits, as they are already included in the cost of the pensions
• Finally, the study makes some basic arithmetic errors that inflate the size of the reported differential between public and private benefits.

Bottom line, the report confirmed what has already been report — that public sector workers in Ohio make less than those in the private sector. The rest was just smoke and mirrors.