The call to slash public sector pensions doesn't add up
The Patriot News
BY STEPHEN HERZENBERG
I ran into a friend recently who’s spent a lifetime in business, rising up the managerial ranks. “I’m leaving the private sector,” he said, “to go make more money.” OK, I made that up.
It’s a story that defies common sense because, well, everyone knows that executives and Wall Street financiers make more money than the highest-paid government workers.
For example, the highest-paid executive in Pennsylvania in 2010 earned as much as the highest-paid 165 Pennsylvania state workers combined. The low pay at the top of the public sector is one reason Gov. Corbett struggled to find supporters over age 35 willing to take key positions in his administration.
Considerably higher salaries in the private sector are not just a reality for a small number of top executives. For full-time public sector workers with a bachelor’s degree or more — more than half the state and local government workforce in Pennsylvania — average salaries equal $54,000. Similarly educated private sector Pennsylvania workers earn an average of $79,000.
Now you might have heard that public sector workers have good benefits, especially pension benefits. That is accurate. But when you do the numbers for Pennsylvania as Rutgers University economist Jeff Keefe just did in a report from the Economic Policy Institute, you find that the low salaries and good benefits of public sector workers are almost a wash: low salaries and high benefits mostly offset each other, although private workers do still enjoy a small advantage. In other words, Pennsylvania public sector workers’ total compensation — wages plus benefits — is still slightly below that of comparable private sector workers.
Despite these facts, the drumbeat calling for slashing public sector pensions continues unabated. Some such as Widener University professor Eric Brucker have gone as far as to call for public sector workers to “cede” some of their retirement benefits because of the disparity with the private sector.
What about the clear disparity in the other direction with regard to salaries? Brucker made this recommendation following his recent survey of elder Pennsylvanians. The survey found, unsurprisingly, that former public sector workers enjoy greater retirement security than private sector. Brucker’s survey also found, again unsurprisingly, that nearly half of private sector retirees worry about outliving their savings.
Why do these findings point to the need for public sector workers to “cede” some of their retirement benefits? Don’t they point instead toward the need to shore up retirement security for private sector workers?
Because better pensions offset lower salaries, slashing benefits also would be unfair to public sector workers. Slashing benefits also is unlikely to save taxpayers money because it will widen the already-large compensation gap between more educated public workers and their private equivalents. This will force agencies to raise salaries if they want to attract and retain high-quality teachers, managers and professionals.
Of course, just because cutting public sector pensions won’t save taxpayer dollars doesn’t mean Wall Street won’t push for it. Financial firms want to eliminate traditional guaranteed pensions and switch public workers to 401(k) type plans. Why? Because financial services firms can then charge fees to manage workers’ individual accounts, fees that come out of workers’ retirement savings. A transfer from Main Street to Wall Street: Seriously? In this economy?
Many proponents of cuts in public benefits also portray the private sector job market as a model for the public one. But isn’t the public sector the better approach? In the private sector, besides the erosion of retirement security, wage inequality is eating away the middle class. Even in the economic expansion before the recession, only the top 5 percent of workers enjoyed meaningful pay hikes.
By contrast, the public sector still has a strong middle class. Virtually all jobs provide long-term, full-time workers with a secure retirement. And rather than being in it for the almighty dollar, many public sector workers have a strong commitment to their mission — whether that is educating children, safeguarding the state forest or preventing epidemics.
That’s why, when I saw my friend in the street, what he really said was, “I am going to the public sector because I want to make a positive difference.”