September 17, 2014
Drawing comparisons between public and private sector compensation requires careful considerations to ensure that wages and benefits are valuated correctly and education and skill levels are held relatively consistent. The difficulties in comparative studies arise when attempting to control wage and compensation for education and skill, and when assigning values to the corresponding retirement and health care benefits offered in the public and private sectors. One of the more thoughtful comparative studies on this issue is a 2011 brief from the Center for Retirement Research at Boston College. Debates about public verses private employee compensation levels often include an argument that state and local workers receive lower wages but more generous retirement and health care benefits compared to the private sector. Comparative studies seek to conclude whether or not public employee compensation in the form of health care and retirement benefits is enough to make up for the wage differential. If done correctly, this type of study is no easy task and the findings tend to provoke controversy.
Another helpful tool for state fiscal planners is the Bureau of Labor Statistics’ (BLS) National Compensation Survey (NCS). While compensation varies across states, the BLS data can help budget officers analyze compensation trends for wages, health care and retirement benefits. Furthermore, the NCS allows pay and benefit changes to be compared across major occupational classes, such as management and professional, sales, administrative, teachers, and health care workers, as well as by region. This quarterly update provides data on:
- Quarterly changes in employer costs — Employment Cost Index (ECI);
- Quarterly employer cost levels — Employer Costs for Employee Compensation (ECEC);
- Incidence and provisions of employee benefits.
The data released on September 10 shows that private sector employees receive 69.8 percent of their total compensation in the form of wages, and 30.2 percent in the form of benefits. Within those benefits, employer spending for health care and retirement accounts for 7.8 and 4.1 percent of private sector employees’ total compensation respectively. In contrast, state and local employees receive 64 percent of their total compensation from wages and salary, and 36 percent in the form of benefits. Employer spending on state and local employee health care and retirement benefits represents 11.7 percent and 9.9 percent of total compensation respectively. Indeed the relative share of overall compensation in the form of health and retirement benefits is significantly higher for state and local employees compared to the private sector
In terms of compensation trends, the NCS shows that for the 12-month period from June 2013 to June 2014, compensation for private industry and the state and local workforce increased at the same rate, 2.0 percent. Wage growth in the private sector increased by 1.9 percent over the same time period, outpacing a 1.3 percent growth in wages for state and local employees. However, employer spending for benefits increased by 3.2 percent for state and local employees compared to a 2.4 percent increase for private industry. The growth rate in total compensation slightly accelerated for both sectors compared to the 12-month period ending in June 2013.
Compensation trends and the overall composition of compensation (wages, health care and retirement benefits) have clear implications for the budget and the ability of states to attract and retain a competitive workforce. And for state workforce officials and fiscal planners, it can be helpful to place their state specific information within the context of national averages. Currently, compensation is increasing at a similar pace for both the public and private sectors, and compared to private industry, a greater share of total compensation for state and local employees continues to go toward health care and retirement benefits rather than wages.
 U.S. Department of Labor, Bureau of Labor Statistics. July, 31 2014. “Employment Cost Index – June 2014.” See Tables 11-13.
 U.S. Department of Labor, Bureau of Labor Statistics. July, 31 2014. “Employment Cost Index – June 2014.”Table A.
Table A Source: Bureau of Labor Statistics September 10, 2014. News Release: Employer Costs for Employee Compensation – June 2014.