Government Workers Cost 45% More Than Private Sector Workers

The United States Bureau of Labor Statistics (BLS) announced on March 12th that the total cost of employing a state or local government worker is 45% more than an equivalent worker in the private sector. 

For the month of December 2013, employers in private industry spent an average of $29.63 per employee hour worked, but the equivalent cost for a government worker averaged $42.89 per hour. Not only do government employees average 33% higher pay than those in the private sector, their pension and retirement benefit costs are now an incredible 254% higher also. Given that compensation formulas for federal, state, and local government are comparable, it should come as no surprise that this year spending by the U.S. government will exceed revenue by an all-time high of $744.2 billion, and our gross national debt is a stunning $18.5 trillion. 

The BLS reportedthat private employers spent $20.76 on average for wages and salaries, plus $8.87for benefits per hour worked. State andlocal government paid $27.66 for wages and salaries, plus $15.23 for benefitsper hour worked. Government employees cost33% more in wages and 71% more in benefits. The biggest difference is that government pension costs are 254% higherthan the private sector.

Thesedifferentials explain why, despite supposed efforts to rein in public spending,net federal, state, and local government spending rose from $6.1 trillion in 2013 to $6.3 trillion in 2014 and will reach $6.6trillion in 2015. The spending rate is actually$600 billion higher, but the federal government gets “inter-governmentaltransfers” of $600 billion. Thetransfers come from U.S. government revenues, such as the $89.9 billion dividend the U.S. government received from theFederal Reserve, as shown below:   

TotalGovernment Spending Fiscal Year 2014:  

          FederalGross Spending       $3.7 trillion      

          Intergovernmental             $-0.6trillion     

          StateDirect Spending          $1.5 trillion      

          Local Direct Spending          $1.7trillion 

          TotalNet Spending              $6.3 trillion   

The BLS Employer Costs for Employee Compensation (ECEC) report also broke down the “legally required benefit costs” inprivate industry for December 2013, which averaged $2.43 per hourworked, or 8.2% of total compensation. SocialSecurity comprises the largest legally required benefit cost component at $1.39per hour, or 4.7% of total compensation. Costs for other legally required benefitsinclude workers’ compensation of $.43 or 1.4% percent of total compensation;state unemployment insurance, which averaged $.23 cents per hour worked or 0.8%;and federal unemployment insurance, which averaged just $.04 per hour worked. Discretionary benefits for life, health, anddisability insurance for private industry employers averaged $2.45 per hourworked or 8.3% of total compensation. Overtimeand premium, shift differentials, and nonproduction bonuses averaged another $.85per hour worked or 2.9%, while retirement and savings averaged $1.10 per hour or 3.7%. 

The “legally required benefit costs” for federal,state, and local are only about $1.78 or 6% of wages. Government employees usually do not have topay into Social Security, but on every other category of benefit, theiremployers pay much higher costs to cover much richer benefits.

About 7%of all Americans are employed by the federal, state, and local government. But since only 56% of working-age Americans havea job, this works out to about one government worker out of eight people whoare actually working. This percentagehas remained about the same for the last 35 years. 

Back in 1979, higher public sector pensions wereconsidered fair compensation since the private sector paid higher wages. At the time, federal government debt was onlyabout a thirdof America’s GDP. But every year sincethen, public sector wages and benefits have grown at about 1% faster than theprivate sector. As the Bureau of LaborStatistics report demonstrates, the faster compounding of total compensation forthe government workers has now reached a record 45% higher than the privatesector. This generous treatment ofpublic employees at least partially explains why America’s federal debt hasmore than tripledto 110% of GDP.