Facts don’t add up in study of government worker pay

Guest Opinion//June 1, 2012

Facts don’t add up in study of government worker pay

Guest Opinion//June 1, 2012

Nick Dranias (Photo from Goldwater Institute website)

A few months ago, the city of Phoenix rolled out a $450,000 taxpayer-funded report showing that local governmental workers were paid 6 percent more in aggregate wages and benefits than private sector workers on average.

The Goldwater Institute responded by pointing out that numerous academic studies—all available at no charge to the taxpayer—had already made the same finding. But we also pointed out that the difference between aggregate salaries and benefits is not the best measure of how much more government employees are paid than private-sector workers. Private sector workers work many more hours than government employees. When the U.S. Bureau of Labor Statistics compared pay and benefits based on number of hours worked, the agency found that state and local government workers made 44 percent more per hour than private-sector workers on average.

Now, the Grand Canyon Institute has rolled out a study of its own claiming that, when controlling for hours worked and a panoply of other factors, government workers in Arizona make 6 percent less in wages and benefits than comparable private sector workers. The group even claims that government workers are underpaid. The report is being advanced as somehow disproving the Goldwater Institute’s estimate that government sector collective bargaining laws cost Arizona taxpayers $550 million per year. There are at least four problems with Grand Canyon’s study.

First, the Grand Canyon Institute’s report did not include the cost of paid leave in its estimates of government-employee compensation. Economists from the Bureau of Labor Statistics—a federal agency—criticized this omission in a prior study by the report’s author as understating government employee compensation.

Second, the report assumes the bigger the governmental body, the more productive the governmental worker. Economists from the Bureau of Labor Statistics have also criticized this assumption as lacking evidence.

Third, the report is premised on the notion that all higher degrees of the same level should command the same compensation—that an education degree is worth as much in the job market in wages and benefits as an engineering degree. Common sense says this assumption is clearly wrong.

Finally, the Grand Canyon Institute’s report simply does not address, much less refute, our estimate that Arizona government employees command $550 million more in compensation due to the leverage provided by collective bargaining laws. This is because our report was targeted to determining what was driving the cost of government compensation. We were not trying to prove a difference between government and private sector compensation—we simply accepted the findings of the Bureau of Labor Statistics and nearly every published academic study on that point.

Instead, in asking, “What factors contribute to how much money and benefits government workers get paid?” we looked at factors that clearly drive government sector compensation: private sector compensation, percentage of unionization, and education level. Our statistical model demonstrated that these factors alone accounted for 76 percent of whatever causes the amount of government compensation to be what it is.

Among these factors, unionization was so significant a driver that we found for every

10 percent increase in unionization in the government workforce, there would be more than a $1,300 increase in government pay. We then found that the strength of collective bargaining laws and percentage of unionization had a similar effect on government employee compensation. So, our conclusion was that unionization was a proxy for the strength of collective bargaining laws in a given state and that, therefore, collective bargaining laws likely increase what government employees would otherwise make in their absence.

Nothing in the Grand Canyon Institute report addresses, much less refutes, these findings. And it is doubtful that anyone would really disagree with them in principle. After all, unions exist to increase what their members are paid. Collective bargaining laws, in turn, increase union leverage in monopolizing labor. It should be no surprise that increases in the strength of government union collective bargaining laws or in the percentage of government unionization cause increases in employee compensation—that’s what unions are for!  What our report does for the first time, however, is put a dollar figure on that well-recognized fact.

No matter how you slice it, that dollar figure indicates that government sector collective bargaining laws cost Arizona taxpayers $550 million per year. That overpayment is especially egregious in these tough economic times.

— Nick Dranias, constitutional policy director; Steve Slivinski, senior economist; Byron Schlomach, Center for Economic Prosperity director, all of the Goldwater Institute.