Benefit Cost Comparisons Between State and Local Governments and Private-Sector Employers

Source: Ken McDonnell, EBRI Notes, Vol. 29 no. 6, June 2008

Nature and work forces of public vs. private sector have major differences–
Major reasons for the differences in total compensation costs between state and local government employers and private-sector employers are the different composition of their respective work forces and the different nature of public- vs. private-sector work. State and local government jobs include education and public safety functions (teachers, police, and firefighters), which involve high levels of education, training, physical fitness, or risk) and largely do not exist in the private sector. Unionization rates also are higher in the public sector than in the private sector.

Compensation costs higher for state and local government due to work force characteristics–
Overall total compensation costs as of September of 2007 were 51.4 percent higher among state and local government employers ($39.50 per hour worked) than among private-sector employers ($26.09 per hour worked).

Health and retirement costs higher in the public sector to support better benefits–
State and local governments have sharply higher costs for health and retirement benefits than private-sector employers, since their workers participate in these benefits at far higher rates and public-sector workers are far more likely to have defined benefit (pension) retirement benefits than are private-sector workers.

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