Dear Editor:"> Tom Kochan, a graduate of UW-Madison and now a distinguished professor at MIT, encouraged Wisconsinites to “Use evidence to fix its public sector challenges.” He reported that public sector employees earn 8.2 percent less in wages and salaries than their private sector counterparts, 4.2 percent after accounting for the fringe benefit advantage. These values come from a">report by  Jeffrey Keefe for the Economic Policy Institute.

Keefe did not compare wages of private and public employees in the same occupations, as you might expect. Rather he created a statistical model comparing wages “controlling” for employee personal characteristics. Using this method he found that the most important personal characteristic is years of education. Public sector employees are paid less if you are willing to ignore the work performed and statistically adjust compensation for years of education.

At first glance it seems reasonable to account for education in wage analysis. After all, we value education as a society and know that those with more education obtain higher wages then those with less. Nevertheless, there are several serious problems with Keefe’s method. Most important, it compares apples with broccoli.

Over half of local public employees are teachers. They have a bachelor’s degree at least and often have advanced degrees. In the private sector, alternatively, college graduates tend to work in occupations involving business -- marketing, finance, production and engineering. Those with advanced degrees in the private sector often obtain MBA degrees and hold high-level managerial positions.

In consequence, comparing public and private sector employees on years of education is really comparing employees in very different occupations. If your objective is to make public employees look underpaid, Keefe’s method will do it.

A September">2010 survey from the Department of Labor compares state and local employees with private sector employees directly. It reports that the average employer wage cost for state and local employees (excluding federal) is $26.25 across all occupations; for private sector employees it is $19.68. Including benefits with wages, the cost for state and local employees goes up to $40.10 and for private employees to $27.88. This represents a 44 percent total compensation advantage state and local employees hold over private sector employees.

Public sector employees may not be overpaid in the abstract, but it seems clear they do better financially, on average, than the private sector employees who help pay their wages. They also enjoy substantially greater employment security. Would so many Madison area teachers violate their employment contract with a sick-in if they worked by private sector rules?

I join Kochan in calling for an evidenced-based evaluation of public sector challenges. However, when it comes to wages I suggest that we look beyond Keefe’s study with its fatally flawed methodology.

Don Schwab


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