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Study finds Connecticut government employees earn 28 percent more than private sector, costing taxpayers $3.7 billion

An updated study published by the Yankee Institute on Wednesday found that Connecticut government employees earn 28 percent more than comparable private sector employees, largely due to public employees’ generous retirement benefits.

That difference adds up to a total of $3.7 billion in tax dollars across all state and local government workers annually, according to economist and author of the study Unequal Pay, Andrew Biggs, PhD.

“Connecticut state or local government employment pays a salary that is roughly comparable to what a similar employee would earn in a private sector job,” Biggs wrote. “However, data from the National Income and Product Accounts show that state and local jobs in Connecticut offer fringe benefits that are over twice as generous as private sector jobs.”

The latest study expanded on a 2015 study that focused only on Connecticut state employees and found they earned up to 46 percent more than private sector counterparts based largely on retirement benefits.

During a video presentation of his findings, Biggs said that a previous 50-state comparison of government employee pay and benefits compared to the private sector found Connecticut had the highest compensation difference in the country.

“Connecticut was either the winner or the loser in that 50 state comparison,” Biggs said. “Connecticut had the highest compensation premium of any state in the country, relative to private sector workers.”

The newest study added local government employees into the analysis and differentiated the data based on income levels. Local government employees’ pay and retirement benefits differ from municipality to municipality.

Video interview with Andrew Biggs, PhD. and author of the Unequal Pay study

Teachers were not included in the study because a number of factors, including the shorter work year, “complicates the analysis.” Biggs wrote that a separate study could be conducted for educators.

The study found that government employees generally work shorter hours, have higher levels of education, are more likely to be women or Black and are younger than private sector counterparts.

Biggs also determined that public sector workers at lower salary levels receive 5.1 percent higher wages than private sector workers, but employees at the higher end of the salary schedule earn about 2 percent less than the private sector.

“This result in consistent with other findings that the public sector pays relatively more competitive salaries to lower-paid employees while being less generous to higher paid employees,” Biggs wrote.

In general, median salaries for public sector workers are 1.8 percent higher than the private sector, but the big boost in earnings comes from pensions and retirement benefits, which are equal to 49.6 percent of annual salaries, compared to 19 percent in the private sector.

Total compensation for government employees, when accounting for retirement benefits, jumps to a median $92,764, compared to $72,500 for private sector workers.

“This fact in important, because state and local governments often misunderstand the true costs of the benefits they promise to employees and rarely benchmark the generosity of these benefits against private sector employers,” Biggs wrote.

These sort of public private compensation comparisons are useful in the sense that people want to know they’re being treated fairly. Public employees want to know they’re being treated fairly, taxpayers want to know that as well.

Andrew Biggs, PhD. Author of the 2015 and 2020 Unequal Pay studies

The study relied on salary data from 2014 to 2018 and therefore did not include the latest rounds of raises and salary step increases for state employees, who received two 3.5 general wage increases in 2019 and 2020, along with two salary step increases, generally valued at 2 percent per step.

The wage and step increases were the result of the 2017 SEBAC Agreement negotiated between Gov. Dannel Malloy and the State Employee Bargaining Agent Coalition in an effort to fill a $3.5 billion budget hole. 

In exchange for raises, the SEBAC Agreement increased state employee payments for medical benefits and created a new retirement tier for pension benefits. According to a report by State Comptroller Kevin Lembo the SEBAC agreement saved the state $1.7 billion in 2018 and 2019. 

However, $827.3 million those savings were tied to state employee wage freezes and furlough days during those same years, and another $450 million was tied to the new, less generous Tier IV retirement plan.

Raises for state employees were estimated to cost roughly $350 million on an annual basis. 

However, government employee wages and benefits could become a factor in upcoming budgetary issues. Connecticut is looking at roughly $8 billion in deficits over the next three years due to the pandemic and economic downturn and the state has a reserve fund of only $3 billion.

Connecticut was bolstered by increased federal funds and actually ended the 2020 fiscal year with a surplus, however state and local leaders are hoping for more federal aid to help deal with the pandemic fallout.

Despite the economic downturn and a projected 6 percent decrease in state revenue, state spending will increase this year by roughly $1 billion due to escalating fixed costs, which include increased payments toward pensions and retiree medical benefits, according to Office of Policy and Management Secretary Melissa McCaw.

“Connecticut faced significant budgetary challenges even prior to the Covid-19 pandemic and economic downturn, in part due to high public pension and retiree health obligations,” Biggs concluded. “Policymakers will need to balance spending priorities even more finely as the state seeks to recover from the Covid recession.”

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(15) Comments

  1. Stephen Douglas

    October 5, 2020 8:18 pm

    Nevertheless…

    “These sort of public private compensation comparisons are useful in the sense that people want to know they’re being treated fairly. Public employees want to know they’re being treated fairly, taxpayers want to know that as well.”

    Andrew Biggs, PhD.

    The comparison of overall “average” or “typical”, or median compensation differences are useful for shock value, and not much else.

    The average federal income tax payment in 2018 was $15,322.

    Americans in the most common income bracket earned an adjusted gross income between $50,000 and $75,000 in 2018, and paid an average income tax of $4,688.

    Those with adjusted gross income of $100,000- $200,000 paid an average of $15,277.

    Many Americans pay no income tax or, effectively, a negative tax.

    So, let’s forget about the “typical” public worker compensation advantage, if you will. Either that, or we can each, richer or poorest, pay $15,322, and eliminate all those pesky private AND public sector tax accountants.

    https://www.oreilly.com/library/view/the-flaw-of/9780470488126/sava_9780470488126_oeb_015_r1.gif

    Clearly, there is a “floor” on public sector compensation. There will always be equivalent private sector workers who earn (much) less than the lowest public sector worker. It is nearly ubiquitous. It is not a coincidence. Many of those private sector workers receive government welfare benefits such as food stamps and Medicaid, EITC, etc.(the negative income tax.) “Walmartization”

    AEI has a counter to that, if you’re interested, “No, government isn’t subsidizing Wal-Mart” (April 7, 2015), but it looks more like a semantics arguement. April 7, 2015

    Providing pensions, healthcare, and retiree healthcare to public employees, even at the lowest income levels, is a policy decision, and it is expensive.
    You can fight it if you want.

    ” In 2017 the plan had 49,538 active employee members with an average salary of $75,578, and the average value of accruing (retiree health) benefits per employee was $16,961.”

    (Biggs, “Unequal Pay, Public Sector Compensation in Connecticut)

    That’s 22.4 percent of wages for the average employee, a much higher percentage for the lowest paid employee.

    There is a very urgent need for pension reform in Connecticut and most other states. The biggest challenges are not these normal costs. The biggest costs are unfunded liabilities. That’s where pension “reform” should start. Let’s try to do it the right way, please.

    • Tough Love

      October 5, 2020 8:58 pm

      Quoting Stephen Douglas ………….

      “Providing pensions, healthcare, and retiree healthcare to public employees, even at the lowest income levels, is a policy decision, and it is expensive.”

      lol …………. when you (as Stephen Douglas does ) can come up with NO JUSTIFICATION for providing a large segment of all Public Sector workers Taxpayer-Funded retirement security and healthcare benefits (both while active and in retirement) that are ROUTINELY 2+ times more generous (and hence 2+times more costly) than what their Private Sector counterparts typically get from their employers ……….. you fall back to “Plan B” ………. just saying that they are a “Policy Decision”.

      A question for readers:

      Are the Elected Officials who make such decisions doing so at “arms-length” and w/o a conflict of interest? Or are they beholden to the Public Sector Unions for the campaign contributions, block votes, and election support that enables their re-election?
      ———————–

      It’s WAY past time to reduce FUTURE Service Public Sector pension accruals (for all CURRENT, not just NEW workers) ALL THE WAY down to the level than can be fully supported with Taxpayer contributions NO GREATER than the 4%-of-pay that is all Private Sector workers typically get from their employers in the form of 401K contributions.

      And who in the Private Sector gets employer-sponsored retiree healthcare benefits today? Private Sector Taxpayers who only in VERY rare cases get such benefits, should NOT be forced to provide such benefits to PUBLIC Sector retirees.

  2. Stephen Douglas

    October 5, 2020 3:39 pm

    Request for information re healthcare…

    As per this study, healthcare, including retiree healthcare, is a major portion of the “overpayment” of public sector employees (and that is not confined to Connecticut.)

    This gets even more complicated in today’s environment of national healthcare problems. I have heard, anecdotally, that 8-12 percent of Americans are covered by state/federal/local government employee/retiree/dependent benefits.

    If true, what effect would reforming (reducing, effectively) these benefits have? Are they more or less efficient in providing healthcare than Medicare, Medicaid, or private insurance?

    Incidentally, it may be worse than you think. If this study is like most others, public workers earn 28 percent more than private workers –with large employers– typically 500 or more. Compared to all private workers, the public advantage is much greater. The big difference is not between public and private workers. It is between public worker/large corporations vs. –all– private workers. Even more so if one compares public worker/large corporations vs. only small employers (500 or less)

    National healthcare reform is almost certainly more urgent than public pension “reform.”

    • Tough Love

      October 5, 2020 4:57 pm

      Quoting Stephen Douglas ……………..

      “I have heard, anecdotally, that 8-12 percent of Americans are covered by state/federal/local government employee/retiree/dependent benefits. If true, what effect would reforming (reducing, effectively) these benefits have? Are they more or less efficient in providing healthcare than Medicare, Medicaid, or private insurance?”

      LOL …………….. Gov’t employers don’t “provide” medical benefits to their workers. They BUY very very very RICH plans (MUCH MUCH more generous than what Private Sector employers typically provide to THEIR workers) in the Private market, from BC/BS, United Healthcare, Aetna, etc., and then hand Taxpayers the very very very high bill.

      As I stated before, (and he’s showing that goal again here) …………….

      “That commentator is a retired CA Public Sector worker who consistently advocates against Public Sector pension/benefit “reforms””

  3. Tough Love

    October 5, 2020 12:03 pm

    In 3 separate comments, one of the commentators ends each his comment with “Where do you propose to cut that $2.8 billion per year?”

    He’s is correct in that the bulk of the over-compensation comes from the lower and middle income groups, and is PRIMARILY coming from MUCH more generous healthcare benefits (both while Active, and especially in Retirement) and Retirement security (via rich DB pension for Public Sector works vs modest 410K DC Plans in the Private Sector).

    That commentator is a retired CA Public Sector worker who consistently advocates against Public Sector pension/benefit “reforms” by accurately suggesting out that such reforms would likely mean lower pensions and benefits for those groups (the lower and some middle income workers) ……….. as though this is an unacceptable thing to do.

    Does it have LESS of a negative financial impact on the Taxpayers that pay for that excess because it comes from these groups?

    Do Public Sector workers in the these groups DESERVE often 2+ times as generous (and hence 2+X more costly) Taxpayer-Paid-For retirement security and healthcare benefits than what their Private Sector counterparts get?

    I put forth that the answer to both questions is NO.

    • Stephen Douglas

      October 5, 2020 1:30 pm

      Quoting:
      “He’s is correct in that the bulk of the over-compensation comes from the lower and middle income groups, and is PRIMARILY coming from MUCH more generous healthcare benefits (both while Active, and especially in Retirement) and Retirement security…”

      (he)”…advocates against Public Sector pension/benefit “reforms” by accurately suggesting out that such reforms would likely mean lower pensions and benefits for those groups (the lower and some middle income workers)…”

      Bingo!

      Except…

      1. This article, and many similar, are extremely misleading because they stress the –average– “overpayment” of public employees.

      2. Many, and perhaps –most– public employees are not overpaid at all… even with their higher pensions and healthcare benefits.

      3. “He” does not advocate against Public Sector pension/benefit “reforms”. Connecticut’s public pension system, like most other states, is seriously in need of reform:

      https://www.forbes.com/sites/andrewbiggs/2020/07/24/a-potential-deal-for-state-pension-reform/#e199c842d69c

      “ERISA set a basic standard: do it right or don’t do it at all.”

    • Stephen Douglas

      October 5, 2020 2:47 pm

      “Most people don’t know…”

      Most readers of this blog probably do know about the redistributive factor of Social Security; that lower income retirees receive a higher relative salary replacement value than those with higher incomes.

      What most apparently are not aware of is the redistributive factor of public sector compensation.

      1. Less educated/unskilled public workers earn much more than equivalent private sector workers. Mainly due to higher pensions and benefits.

      2. PhD s and professionals in the public sector on average have much lower salaries than the private sector, and the higher pensions and benefits are not sufficient to compensate for the lower salaries.

      3. Between these extremes is a group of public employees whose lower salaries are roughly compensated for by the higher pensions and benefits. Their total compensation is roughly market value.
      A. Almost universally, “pensions and benefits” are a higher proportion of compensation for public sector workers than for the private sector.

      Therefore:

      I hope it is obvious that –if– “…Connecticut government employees earn 28 percent more than comparable private sector employees…”
      –then– the solution is not to cut all public workers by 28 percent, or… –if– the median Connecticut public worker earns $20,264 than a private sector worker, the solution is not to cut all public worker compensation by $20,264.

      Further:

      If the lower paid public workers pensions/healthcare were cut to “equivalent private sector worker”, is that a net savings to Connecticut taxpayers? It has been suggested that, if wages are inadequate for lower paid public workers, they should avail themselves of public programs (Medicaid, Snap, welfare, etc.) ” just like the private sector”.

      “I put forth that the answer to both questions is NO.”

  4. Registered Republican

    October 5, 2020 9:24 am

    I will speak on behalf of the trade’s men and woman across the state, and with confidence state the private sector has surpassed the state…..

    Wages are far behind and the state is struggling to hire and retain qualified candidates which in the long run would save the state money. I can apply this ideology to the area of work I had worked within, in state employment……regardless of fringe benefits folks need to survive present day and many turn down state jobs because of the wage gap.

    This article is completely unhinged from reality.

    I do agree with future changes. I say move to a 401k…..with some level of a match or retain retiree healthcare for incentive.

  5. Stephen Douglas

    October 3, 2020 7:59 pm

    “It is not a simple matter to calculate the public sector compensation premium or penalty paid at different wage levels.”

    Not simple, but, kind of important, is it not?

    “Ninety-five percent of the $20,263 total compensation premium paid to a median state and local government employee is in the form of more generous benefits.”

    A) How much of that $20k premium is attributed to retiree healthcare, and could be eliminated by single payer healthcare? (Not that I am advocating single payer.)

    B) It seems one could divide all Connecticut public workers into two categories, re total compensation compared to equivalent private workers.

    1) Overcompensated, mostly the least educated/unskilled public workers. (And generally lowest paid.)
    3) Undercompensated (professionals, PhD s, etc.)
    2) One man/woman who is theoretically compensated “just right” compared to his/her private sector counterpart.

    Expand that middle cohort (#2) to include those at “market level” (total compensation +/- 5 percent of the private sector)

    Three groups.
    Where will you cut to attain your $2.8 to $3.7 billion?

  6. Stephen Douglas

    October 3, 2020 2:23 pm

    “… one cannot apply the 49.6 percent ratio of benefits to salaries at different salary levels. The reason is that certain benefits are proportional to earnings while other benefits have a more-or-less fixed dollar value. For instance, the value of accrued pension benefits generally rises along with the workers’ earnings while the value of health care or retiree health benefits are comparable in dollar terms among employees with different salaries.”

    “Thus, the employer-funded value of future retiree health benefits earned in 2017 was equal to 22.4 percent of employee wages. In 2017 the plan had 49,538 active employee members with an average salary of $75,578, and the average value of accruing benefits per employee was $16,961.”

    If the average value per employee is $16,961, does that mean that (roughly), for the $50,000 wage employee, the accruing value is 34 percent of wages, while for the $150,000 worker, it is 11 percent?

    Where do you propose to cut that $2.8 billion per year? (Or $3.7b?)

  7. Stephen Douglas

    October 3, 2020 1:57 pm

    Conclusion:
    “The total budgetary cost of above-market compensation for state and local government employees in Connecticut reaches $2.8 billion per year.”

    “At the 25th percentile of the public sector wage distribution employees receive salary premium of 5.1 percent, while at the 75th percentile state and local salaries are 2.6 percent lower than jobs held by comparable private sector employees.”

    “At the 95th percentile the state and local employee salary penalty reaches 11.4 percent, while at the 5th percentile state and local employees receive salaries 10.0 percent higher than those paid to comparable private sector workers.”

    Assuming, roughly, the 5th percentile is $5,000 and the 95th is $150,000…
    $50,000 $5,000 advantage

    $150,000. $17,000 penalty

    The difference between a 10 percent advantage and a (roughly) 10 percent disadvantage is huge. Where do you propose to cut that $2.8 billion per year?

  8. Karl Stursberg

    September 30, 2020 3:38 pm

    If the corporations in CT paid their fair share in taxes and the wealthy individuals that make over $500k per year pay what they should then there would not be any deficit at all. Perhaps special interest groups like the Yankee Institute should stop blaming the middle income wage earners like the State employees and focus more on their buddies.

    • Linda Lavelle

      October 1, 2020 11:15 pm

      I wonder if you consider SEIU a special interest group. State employees earn about what their private sector counterparts make, but their benefit package, including ultra generous pension payouts, make their income the most expensive in the nation, to the tune of $3.7 billion. Add to that the corruption of state employee unions making major campaign donations to Democrat legislators who, in turn, vote continuous pay raises for state employees. Is it any wonder that this state is badly in debt? They might consider cutting back on spending (ha!)

      Raising taxes on the wealthy (those that are left) and corporations will surely send the rest of them to low tax states like Florida. A few years ago the Florida governor at the time thanked CT’s legislature for “sending” so many great businesses to Florida. Businesses here already pay healthy corporate taxes and a “temporary” surcharge that has not been temporary. When the wealthy leave, guess who’ll be left to pay the hefty taxes? You and I.

    • Tough Love

      October 2, 2020 8:42 am

      I beg to differ …………. there is ZERO (yes ZERO) justification for a Public Sector worker doing essentially the SAME job as his/her Private Sector counterpart to get ANY greater Total Compensation (wage + pensions + benefits), let alone the 28% indicated above. Taxes are MORE than sufficient. It’s the mooching Public Sector Unions, workers, and retirees that is the problem, along with the Union-owned Elected Officials that do their bidding.

      • Tough Love

        October 2, 2020 4:54 pm

        Per article …………

        Public Sector Total Comp = $92,764
        Comparable Private Sector Total Comp = $72,500

        That’s an annual $20,264 Public Sector ADVANTAGE.

        Gee, how much MORE would such a Private Sector Taxpayer have for his/her retirement needs if THEY received an extra $20,264 ANNUALLY to save and invest over their entire career…… an extra $500,000, $1 Million, $1.5 Million ?

        Well, turn the example around, and those figure are a good estimate of how much CT Taxpayers are OVER-COMPENSATING the average full career Ct Public Sector worker.

        This THEFT of Private wealth is outrageous.

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