State Compensation Problem Bigger Than Advertised

An editorial in The Detroit News today calls on the state government’s employees to come to the bargaining table to offer concessions. It cites an analysis from University of Michigan economist Don Grimes that showed public-sector compensation increasing from $43,450 to $62,237 in the past decade, much higher than private-sector growth. But the state government compensation imbalance is worse than this.

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The numbers between the two groups are disparate because Grimes uses compensation from all state government employment — all workers at state universities would be included, for instance, instead of just the 50,000 people that get their paychecks direct from the state of Michigan.

Including only state employees, the wage and benefits package for the average state worker cost $94,686 in fiscal year 2010. This is an increase from $57,622 in 1999.

Few employees receive paychecks worth that much. That is because state government compensation is substantially tied up in benefits that workers may not directly see. Indeed, 39 percent of a state employee’s cost is tied up in benefits. And with retirement benefits and retiree health care out of whack and underfunded, compared to the private-sector, a good portion of these costs are actually going to previous employees.

All told, The News is correct in asking for substantial reform to state employee compensation. With large growth in the costs of employment, the state’s negotiators should be on solid footing when asking for concessions.