Executive Summary

Since the January 2011 tax hike, Illinoisans have seen more of their household budgets go to shoulder the growing cost of government employee compensation packages – packages made up of overly generous pay and perks that many can only dream of. Righting this imbalance is one of the great social justice questions facing policymakers today.

In 2008, government employee wages and benefits accounted for one-third of Illinois state government spending and two-thirds of Illinois local government spending. This study details how much of this spending is disproportionate with comparable private sector spending and current financial realities.

As fiscal year 2012 begins, governments in Illinois continue to face serious budgetary challenges – perhaps the most serious since the Great Depression. This situation requires a thorough review of expenditures, particularly in the realm of government employee compensation.

At a time when one out of 11 Illinoisans are out of work, Illinois’s state employees
are protesting the fact that they didn’t get their third pay raise of the year. This short
video is an introduction to the report Out of Sync: Government and Private Employee
Compensation in Illinois.

Solving the state’s fiscal crisis and, by extension, the flight of people and businesses from Illinois, will require tackling government labor costs. The expectations of state workers should be balanced with those of others who rely on government spending, such as welfare beneficiaries, contractors, service providers and the state’s creditors, as well as the taxpayers who pay the bills.

Right-sizing public employee compensation will help balance the budget in a fair manner, maintain funding for core government services and protect overburdened taxpayers, thereby resulting in a stronger, more prosperous Illinois.

Key Findings

Average Employee Compensation in Illinois

Overall, the average compensation for an Illinois government worker is higher than the average compensation for a private sector worker in Illinois. It is estimated that in 2008:

• Compensation per state government employee averaged $69,500, which is 23 percent more than the private sector worker average of $56,500. Much of the difference was in employer-paid benefits, which were more than 1.5 times that of private employees. State employees received 16 percent more in wages and salaries than private employees.
• Compensation per local government employee averaged $63,100, which is 12 percent more than the private sector worker average of $56,500. Much of the difference was in employer-paid benefits, which were more than 1.5 times that of private employees. Local government employees received 4 percent more in wages and salaries than private employees.

Compensation Per Hour Worked: The gap between state and private employee compensation is greater per hour worked. The more generous state government paid time off policies raise the state government employee compensation advantage to 28.8 percent over private employees.

Likely Understatement of Government Employee Benefits: These data, it should be noted, appear to understate the difference between government and private employee compensation in Illinois.

• The state has underpaid its annual pension and retiree health care obligations for some time. These deficits, which amounted to $2 billion in 2008 alone, will need to be paid. If the payments had been made on time, recorded levels of state employee compensation would be higher.
• There also is evidence of underpayment of annual pension and retiree health care obligations in local governments, though the extent of underfunding is undetermined.

Further, the cost to taxpayers has been increased by the failure to make on-time payments, because of the obligation to pay interest on deficient balances (interest that would otherwise be earned by the funds). However, this is not a cost of employee compensation, but rather results from the state’s financial management difficulties.

At the same time, government employee compensation has been rising faster than that of private employees. Between 1993 and 2008, overall full-time equivalent state employee compensation rose $11,700 relative to private employee compensation. Local government employee compensation rose $4,800 relative to private employee compensation (all data is adjusted for inflation).

Comparing Private Sector and Government Jobs

There is no reason for government employee compensation to differ from private employee compensation for comparable jobs. However, differences between private and government employment make it difficult to compare employee compensation for equivalent positions. Studies have reported substantially different results, even using purportedly equivalent jobs.

The ultimate test is the value employees themselves place on the job. The value of a job is indicated by more than wages or even total compensation. A job can be more or less attractive based upon other characteristics, such as job security, paid time off, responsibilities and eventual retirement income. The value of a job and the attractiveness to the employee may be most effectively evaluated using relative turnover rates (voluntary separations) between comparable jobs in the government and private sectors. The employee turnover rate at the state level is comparatively low, at approximately one-quarter the private sector rate, which could indicate overall that employee compensation is higher than appropriate. Equity between the government and private sectors requires that comparable jobs be equally attractive (have the same market value), including both monetary and non-monetary factors.

Career Compensation: To circumvent the difficulties in categorizing jobs, this analysis uses acomparable job analysis, which assumes that three employees of equal education and skills begin working for the state, a local government and a private company on the same day in 1993, in jobs of the same responsibility at the same wage or salary level. Over the course of the three careers, wages, salaries and benefits are adjusted based upon trend differences between the sectors:

• Over a 40-year career, the private sector worker would receive compensation of $2,246,000. The state employee would receive $2,890,000 – which is $644,000 more than the private employee. The local government employee would receive $2,580,000, which is $334,000 more than the private employee.
• Over a 35-year career, the private employee would receive compensation of $1,973,000. The state employee would receive $2,457,000, which is $484,000 more than the private employee. The local government employee would receive $2,236,000, which is $263,000 more than the private employee.

Career Compensation Per Hour Worked: This analysis, however, understates the value of state government employment because state workers receive more paid time off than private sector workers. It is estimated that over a 40-year career, the average state worker would receive $210,000 more in compensation for time off than a private employee. Over a 35-year career, the state government employee advantage is estimated at $169,000. For example, state workers would receive approximately 440 more days of paid vacation days, personal days and holidays over a 35-year career. Over a 40-year career, the same state worker would receive approximately 510 additional paid days off when compared to the average employee in the private sector. The comparable private employee would have to work 6.8 days to earn the same compensation as the comparable state employee earns in five work days (one week), and would need to work 6.6 days to earn the same compensation as the average local government employee.

Additional Advantages of Government Employment: There are additional advantages of government employment relative to private sector employment. These include superior job security, superior sick time accrual, earlier retirement and higher retirement incomes. Further, in 2009, state and local government employees took approximately one-third more paid sick days than private sector employees at the national level (Illinois data was not available). Government employees have even more significant advantages in having their compensation generally established administratively. Additional advantages come through their political access to officials responsible for making compensation decisions, rather than through the competitive conditions.

Conclusion

It is important to note that employees of the state of Illinois, its units of local government and its private companies are overwhelmingly dedicated to their jobs and effective in their job performance. Nonetheless, there is strong evidence that government employees are better compensated than private employees in comparable jobs. The existing and expanding compensation gap between government and private employees is unlikely to be sustainable in the long run, especially with the economic and fiscal challenges facing Illinois.

There is a need to undertake reforms, such as moving from unsustainable defined-benefit pensions to defined-contribution retirement systems, to evolve toward parity between government and private employee compensation. These reforms should take into full consideration monetary and non-monetary factors. Because turnover rates may serve as the best indicator of job attractiveness, policymakers should seek to align compensation with the private sector. With that, Illinois’ public sector turnover rates should converge with those in the private sector.

In preparing this report, difficulties in state employee compensation reporting were evident, which make it exceedingly difficult to obtain comprehensive data. There appears to be no comprehensive state personnel report detailing employee wages, salaries, employer-paid benefits and the number of employees. For example, it was reported that there is no central source for sick day usage information. The lack of comprehensive and readily available data on state employment is a serious problem. A comprehensive state and local government employee compensation reporting system should be implemented without delay so that elected officials, administrators and taxpayers have access to accurate and reliable data. The State Comptroller could issue these reports.