Mackinac Center Adjunct Scholar Comments on Public vs. Private Pay Study

An adjunct scholar for the Mackinac Center for Public Policy responds to a recent study which concludes that state and local government workers receive lower compensation than private sector workers.

by Amanda Griffin-Johnson

Earlier this year, the Center for State & Local Government Excellence and the National Institute on Retirement Security released a study that concludes that the total compensation of state and local government workers is less than that of private-sector workers when factors such as age and education are taken into account.

Dr. Gary L. Wolfram, a professor of political economy at Hillsdale College and adjunct scholar at theMackinac Center for Public Policy, notes that there are statistical problems with the study. Dr. Wolfram contends that:

“If two explanatory variables are correlated, such as unionization and public sector, then the regression technique will not be able to distinguish between the two effects. The effect of being in the public sector may be picked up in the regression coefficient for unionization. Since age, education and unionization seem to be correlated with the public-sector variable, the key estimate for the conclusion of the authors, the coefficient on their dummy variable public-sector worker is likely to be statistically biased.”

Because of these problems, Dr. Wolfram concludes that “[t]he relevant issue is whether changes in government policy can yield the same or greater amount of public services with lower cost and this requires a different and more in-depth study.” To read Dr. Wolfram’s entire article on the Mackinac Center website, click here.