Michigan’s public-sector workers are generally understood to
have a more expensive benefits package than private workers. But getting a
precise figure on the average level of benefits offered by the two sectors involves
obtaining governmental statistical information from a number of sources,
ensuring that definitions match, making needed assumptions, and then performing
alternative calculations to check for robustness.
Much of the work was done for an article in 2009
that estimated the difference at $5.7 billion. Since publishing, interested
parties have requested a more in-depth look at the methodology. This paper
provides that information.
Assembling the data and mapping the calculations
No single source exists for a detailed breakdown of the
benefits offered to public- and private-sector members on a state-by-state
basis. Because of this, a series of assumptions needed to be made in order to
estimate savings or costs from benchmarking public-sector benefits. The author
proceeded on two principles: be as comprehensive as possible and be as
conservative as warranted.
Michigan’s private-sector benefits information ultimately
comes from the Bureau of Labor Statistics’ National Compensation Survey. The
survey provides a breakdown on the costs per hour for a private-sector employee
in the “East North Central” region, which includes Michigan, Illinois, Indiana,
Ohio and Wisconsin.
The benefits information it covers includes the average cost
per hour worked for the following types of benefits:
- Paid leave
- Sick leave
- Other paid leave
- Supplemental pay
- Overtime and premium
- Shift differentials
- Nonproduction bonuses
- Insurance plans
- Health (Which includes medical, dental, vision,
prescription drug and other health insurance coverage.)
- Short-term disability
- Long-term disability
- Retirement and savings
- Defined benefit
- Defined contribution
- Legally required benefits
- Social Security
- Federal unemployment insurance
- State unemployment insurance
- Workers’ compensation
The NCS also collects data on access to “nontraditional”
benefits such as child care assistance, flexible workplaces, long-term care
insurance, employee assistance programs, subsidized commuting and stock
These, however, are not quantified nor are they included in its breakdown of the
East North Central region.
A frequent question after publishing is whether bonuses were
accounted for as a benefit by the private-sector measure. It was believed that
private-sector recipients received bonuses, counted as salary by the survey, which
mitigated or eliminated benefit disparities with the public sector.
This belief was mistaken. The BLS includes “nonproduction
bonuses” as a benefit. These were payments to employees that were not directly
tied to an individual or group’s production.
These types of bonuses are also available to some state and local government
workers around the country as well.
This survey would ideally be the source for Michigan’s average
public-sector compensation along with private sector information. However, only
a national average of state and local
government employees’ benefits is available from this survey, so it was not
used to compare Michigan public compensation. The national, state and local
government employee compensation data was explored as an estimate for Michigan’s state and local government
employee compensation. However, as shown below, more state-specific measures
appear to be a better proxy for the average level of benefits provided to
Michigan’s state and local government employees.
The state Civil Service Commission’s annual workforce report
was used to estimate the benefits received by Michigan’s public sector. The
report includes detailed information on the state’s 50,000 employee workforce —
around 13 percent of all the state and local government employees in Michigan. The
data serves as a proxy for the benefits obtained by all state and local
government employees in the state.
Specifically, benefits levels are found in table 2-3 of the
includes the following breakdown of benefits:
- Legally required payments
- Unemployment compensation
- Workers compensation
- Group insurance
- State health plan
- Health maintenance organization
- Long-term disability
- Flexible benefits allowance
- Other cash payments
- Terminal annual and sick leave
- Terminal longevity payments
- Professional development
- Uniforms and dry cleaning
- Pension and deferred items
- Retirement or pension plans
- FICA for early-out retirees
- Defined contribution pension plan
- Banked leave time for employer contribution
The figures are published as a percentage of payroll.
However, the figures are summarized in a dollar value by multiplying this
percentage of payroll by an imputed average annual salary for a state
Other data received from the Civil Service Commission after
publishing the original article indicate that average wages and benefits may be
underestimated, though by less than 10 percent. The average wages in the
imputed workforce report were $53,495 and benefits of $31,107. By calculating an
average based on total payments for wages and benefits divided by full-time
equivalent employees, average wages are $58,830 and benefits are $34,209. The
information from the workforce report was used because the workforce report
figures are published accounts of state employee compensation.
As indicated, the categories compare well with the BLS
breakdown. There are a couple of differences, however. Terminal annual and sick
leave payments are not the same as payment for vacation, holiday or sick leave
as in the NCS survey. Terminal annual and sick leave payments are cash payments
for unused vacation and sick leave when an employee retires. As such, this
would understate public-sector benefits.
Employer-paid professional development fees and uniform and
dry cleaning benefits offered to some state employees are also not included in
the NCS survey. The state’s workforce report indicates that this equates to 0.24
percent of base salary, less than a percent of total benefits.
Thus, the data available from the NCS and the state’s
workforce report cover much of the same information and better alternatives are
The data is categorically comparable, but the figures are
reported differently. NCS information is available as a cost-per hour while the
workforce report is presented as an annual estimate. The state annual estimates
were divided by 2,088, the figure used by the state as the average number of
hours in a full-time work year in its workforce report, in order to make the
annual figure an hourly figure.
With the average differences in benefits in hand, it is only
a matter of finding out how many employees to apply the figure to and to
annualize the difference.
Data on the number of government employees is available from
the Census Bureau’s governments division. It surveys every state government and
a sample of local governments to determine the March payrolls, including the
number of full-time, part-time, and full-time equivalent employees.
These include members of every Michigan state or local
government organization — the state, state universities, community colleges,
school districts, counties, municipalities, townships and special authorities —
all governmental units in the state. The 2007 report, the most recent available
at the time of publishing, shows that there were 411,659 state and local
The difference in average hourly benefits was annualized by
multiplying it by 2,088. The annual disparity was then multiplied by the number
of full-time state and local government employees in Michigan to get $5.7
Information is available from the Census Bureau on the
number of part-time employees in Michigan as well as the number of full-time
equivalent employees. However, these employees are excluded from this
calculation. Part-time employees may or may not be offered paid leave,
retirement and insurance benefits. This is somewhat inconsistent with the
private-sector averages since they included employees that may or may not be
eligible for benefits beyond those legally required.
Technically, a large portion of part-time employees are
offered some benefits, though not always health insurance. State classified
employees, judges, state police and public school employees are placed in state
pensions systems and governments set aside money into pension funds for the
employees regardless of full- or part-time status.
Also, private-sector benefits are calculated as a percentage
of total employees, not simply those who are full-time employees.
Including the number of full-time equivalent employees in
this calculation raises the difference between public and private benefits to
$6.9 billion. However, using only full-time employees in the comparison is a
Testing the assumptions and checking for robustness
There are a few assumptions made in the calculations
described above that can influence the estimated disparity between public and
private benefits, including the following:
- That the East North
Central Region is an adequate approximation for Michigan.
- That the state and local
benefits measure for the United States is
not an appropriate approximation for Michigan state and local
- That the Michigan state
classified employment benefits package is roughly equal to the benefits
package received by other state and local government employees in the
There are also data sources that provide similar information
on benefits that can be used to test the robustness of the calculation.
To test the assumption that the regional measures were fit
to be used as a Michigan measure, wages for the East North Central Region
listed in the NCS report were compared against average wage rates for Michigan
listed in the Quarterly Census of Employment and Wages.
Similar wage rates imply that the East North Central region is a good benchmark
for Michigan compensation.
Average weekly wages were compared to the average East North
Central hourly wage multiplied by 40 to account for an average workweek. Since
the QCEW information also includes vacation, sick leave and holiday pay as part
of wages and salaries, the NCS paid leave information data was added back into
Discrepancies in quarterly wages between the two range from
the Michigan wages being 3 percent lower to being 12.9 percent higher. The
average difference from the 2004 to 2008 period showed that Michigan was 3
percent higher than the East North Central average. For the sample period (the
last quarter of 2007 to the third quarter of 2008), the average difference was
only 1.4 percent.
While benefit compensation is unobtainable from this source,
NCS was at least a representative fit for Michigan wage compensation and this
calculation bolsters the case for using NCS East North Central information to
compare Michigan public and private benefits costs. If Michigan private sector
benefits maintain the same sample period 1.4 percent difference as wages, then
adjusting the private sector benefits upwards of 1.4 percent would decrease
savings estimates by $99.1 million.
To test the assumption that Michigan’s civil service
compensation figures are a more appropriate match to Michigan’s state and local
compensation than the national figures, we compared the Census-reported
information on payroll to the two different proxies.
If the figures for wages are consistent, then figures for benefits are likely
consistent as well.
In order to convert the Census figures to hourly rates, the
March 2008 payroll was divided by the number of full-time equivalent employees
and then by the number of working days in March (21), and by the number of
working hours in a day (8).
As the table below indicates, the average hourly comparison
between different public sectors is different by only pennies. The national
public-sector average wage rates, in contrast, are 12 to 15 percent different
from the Michigan public-sector average wage rate.
A final check was performed on calculations since there is
an alternative source for information on benefits, though it is less
comprehensive than the NCS and civil service data.
The Bureau of Economic Analysis reports on state personal
income from a number of sources, including wages, “supplements to wages and
salaries” (which include retirement benefits, payments for insurance benefits),
and government social insurance payments. These benefits categories are
consistent with the NCS “legally required benefits,” “Retirement and savings,”
and “insurance plans.” However, it would be missing supplemental pay and paid
leave, which would be included in the BEA’s wages and salaries category.
The BEA reports on these benefits as supplemental pay in its
compensation reports. It also reports on wages and salaries, where supplemental
pay is excluded. Subtracting the two categories for the private sector and for
the state and local sectors gives an approximate level of benefits for the two
To get an average benefits level, the total benefits figures
were divided by the number employees in the industry as reported by the BLS
Still, taking the average compensation levels by industry
verifies the magnitude of benefits discrepancies. Using the two different
employment calculations, state and local employees receive benefits worth 24.3
to 50.9 percent higher than private-sector workers. However, the imputed
calculations involve benefits levels that are significantly less than reported
information. For instance, the costs of retirement, insurance and legally required
benefits per hour for Michigan private-sector workers is estimated at only
$2.76 to $3.33 per hour, depending on which employment estimate is used for the
BLS. This is significant since the NCS reports these costs at nearly double
that rate — $5.47 per hour.
So while these figures show that there are discrepancies
between public and private sector benefits, it does not include enough benefits
and the analysis used to impute the measures is likely to underestimate
benefits levels for both private and public employees.
 "National Compensation Measures," in Bureau of Labor Statistics Handbook of Methods (U.S. Bureau of
Labor Statistics, 2010), 19.
 The BLS
has separate classifications for attendance bonuses, profit-sharing,
recognition, end of the year bonus, holiday bonus, payments in lieu of
benefits, safety bonus, suggestion bonus, hiring bonus, longevity bonus,
referral bonus, retention bonus, union-related bonuses, management incentives
and others. See "National Compensation Survey: Glossary of Employee Benefit
Terms" (U.S. Bureau of Labor
Statistics, 2009), 23-24,
(accessed Dec. 16, 2010).
publication notes that “Base payroll consists of all salary and wages,
overtime, compensatory time, deferred hours, annual leave, and sick leave paid
during the fiscal year.” This is different from the NCS, where sick and annual
leave are considered benefits and would inflate the disparity between public
and private sector benefits as discussed in footnote 5.
impute the salary, the state multiplied each employee’s wage rate by 2088 — the
number of hours in a year-round full-time job. This method may skew the data to
overstate the average annual pay for part-time workers and to understate it for
workers that are paid hourly and typically work more than 40 hours per week.
 Using data received after publishing, payments made
for sick and annual leave would decrease salary and increase benefits by $349.5
million. This would increase average benefits to $19.68 per hour, an increase
 "Quarterly Census of Employment and Wages" (U.S. Bureau of
Labor Statistics, 2010), https://www.bls.gov/cew/ (accessed Sept. 28, 2010).
According to the BEA, “Wage and salary disbursements consists of the monetary
remuneration of employees, including corporate officers salaries and bonuses,
commissions, pay-in-kind, incentive payments, and tips. It reflects the amount
of payments disbursed, but not necessarily earned during the year.” See "Regional Definitions: Wage and Salary Disbursements" (U.S. Bureau of Economic Analysis, 2010),
http://www.bea.gov/regional/definitions/nextpage.cfm?key=Wage and salary
disbursements (accessed Dec. 16, 2010).
 See "State and Metro Area Employment, Hours and Earnings" (U.S.
Bureau of Labor Statistics, 2010), https://www.bls.gov/sae/ (accessed Sept. 28,
The BEA also has an employment estimate for these industries. However, the
employment measure is rarely used and include an expansive definition which
only excludes unpaid family workers and volunteers. It also includes proprietor
employment, which means that a person working full-time at Wal-mart that also
sells some handmade glassware through etsy.com through a home business would be
included as having two jobs. The glassware would not be included in the BLS
definition, which excludes proprietor employment.