Implementing ‘Benefits in Balance’

Leveling the average public sector employment benefits to private sector averages is important for several reasons. Tax revenues are best used to provide valuable services to taxpayers, but the more governments spend on employment benefits, the fewer services they can provide. There is also the issue of fairness to taxpayers. It is difficult to justify a policy that both costs taxpayers more and provides them with fewer services. And finally a question of sustainability — perpetual increases in the costs of government coupled with reduced public services will eventually drive away taxpayers.

Benefits are only a portion of an employee’s compensation package, with the other portion being wages and salaries. Comparisons between public and private sector wages are slightly more difficult because wages are much more receptive to changes for market conditions, while benefits packages are much more likely to be offered to all or nearly all members of an
employee group.

Still, some analyses explore differences in total compensation. A paper from Andrew Biggs and Jason Richwine, for example, found that public school teachers — the most common government employee — receive wages comparable to skilled workers in the private sector, but receive more generous benefits packages.[76]

Regardless, fixing the increasing costs of government employment benefits is vital to containing the costs of government. As shown above, the average costs of wages increased only modestly while the cost of benefits have skyrocketed. And indeed, as policymakers address the costs of benefits, more money may be available to be provided by way of wages and salaries.

In theory, since most local government and school district officials are free to offer and negotiate for any level of employment benefits they see fit, leveling the benefits between public and private sector employees would not require significant changes to state policy. Public sector employers could simply start negotiating with unions and changing their employment terms, benchmarking the employment benefits they offer with private sector averages. This would go a long way toward achieving the $5.8 billion savings identified above.

Despite this fact, the Legislature may need to take a more active approach in leveling the cost of benefits in Michigan’s public sector. After all, this wide disparity between public and private sector employment benefits in Michigan was largely created by local government officials; it is difficult to imagine these same officials suddenly reversing this trend all on their own.

The Legislature could use any of three methods to reduce the disparity between public and private sector benefits in Michigan: incentives, statutory mandates and constitutional requirements. These are discussed in the following sections.