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.
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.”