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Ohio's debate over Issue 2, the referendum on Senate Bill 5, has drawn particular attention to the compensation of public employees.
Voters will decide the fate of the issue Nov. 8. Voting "yes" on Issue 2 is voting in favor of SB 5, which restricts the collective bargaining rights of all public workers in the state. A "no" vote on Issue 2 is a vote to repeal SB 5.
Issue 2 supporters say that SB 5 would help control costs for public employers at the state and local levels. The argument is distilled in "Had Enough," a 30-second TV spot from the political action group Building a Better Ohio.
"Without Issue 2," the voice-over narration says, "hard-working Ohio families will face higher taxes to pay for the excessive wages and benefits of government employees, who already make 43 percent more than the rest of us."
Reinforcing the point, words on the screen say, "Government employees make 43 percent more in wages and benefits."
The assertion that Ohioans will face higher taxes is speculative. PolitiFact Ohio can't rate it because it involves predicting the future.
But PolitiFact Ohio was interested in the assertion that the compensation of public employees is 43 percent higher -- almost half again as much -- than the compensation of workers in the private sector.
We asked Building a Better Ohio for the basis of its claim. Press secretary Connie Wehrkamp referred us to a recent study that the American Enterprise Institute, a conservative policy group,prepared for the Ohio Business Roundtable.
The study found that public workers, based on wages alone, earn about 2.5 percent less than comparable private employees. But it concluded that public workers make 43 percent more when the value of benefits, including pensions and "job security," are factored in.
AEI authors Andrew Biggs and Jason Richwine said that wages were "comparable," that pensions and health insurance helped give public workers a 31.2 percent edge in non-wage benefits. The most significant factor came in the way they calculated pension funding for public and private sector workers, putting a premium on the "guaranteed" element of public pensions. We will return to that.
Job security, they said, adds an economic value of about 10 percent -- meaning that job security makes a $40,000-a-year job, for example, worth $44,000 to the employee. But that’s not the same as the public employer giving the employee $4,000 more in a paycheck.
But that wasn't the last or first word.
The study came in response to a paper by Rutgers University professor Jeffrey Keefe that was published by the liberal Economic Policy Institute. Keefe's study said that Ohio public employees annually earn 6 percent less on average than comparable private-sector employees in total compensation (wages and non-wage benefits).
Keefe followed it in October with another paper rebutting the study from AEI.
In our reading of the studies, the biggest disagreements came in the areas of health benefits for retirees (which not all public employees receive), pension costs and job security.
We sought guidance on those matters -- or a referee -- from the authoritative and nonpartisan Center for Retirement Research at Boston College. Because of its interest in pension plans, the center published a research paper in September that examined other papers and compared public and private compensation.
The center found no real disagreement among researchers that state and local workers as a group "are paid less than their private sector counterparts.
"The question," it continued, "is the extent to which the value of the benefits provided to state-local workers offsets the wage penalty."
It determined the answer was not as great as what the AEI paper asserts.
Alicia H. Munnell, director of the Center for Retirement Research, told us that the largest points of contention with the AEI study came over pension funding and job security.
The primary issue with pension funding was disagreement about the "discount rate," which is the interest rate used in figuring how much money must be set aside today to make future payments.
The estimates of those costs in the AEI study push up the figure for public employers far higher than what the Center for Retirement Research found. Conversely, AEI’s study projected smaller Social Security costs for private employers.
Several economists told us that the discount rate is a hotly contentious issue in the field, largely because the "correct" rate can't be proven empirically.
Munnell noted that the center put no added value on job security, because the historical advantage in the public sector has diminished or disappeared. When it has existed, she said, job security was taken into account as the trade off for lower wages in public employment. Making it a separate factor would be double counting.
"We concluded," Munnell said, "that public sector compensation in Ohio is 9 percent higher than private sector compensation."
What does PolitiFact Ohio conclude?
The claim does contain an element of truth. The non-partisan Center for Retirement Research would agree with the notion that benefit packages on average can increase the value of a public employee’s compensation package above that of the average private sector worker.
But there are critical facts that give a different impression of Building a Better Ohio’s claim.
There is general agreement that public employee wages, on average, are less. The AEI study Building a Better Ohio relies on estimates they are about 2.5 less than comparable private employees.
The ad from Building a Better Ohio flatly states that public employees "make 43 percent more" than private sector workers. We think the average listener would interpret that as meaning the average public employee is paid - in wages and benefits - 43 percent more. But some components of the AEI study aren’t based on money changing hands, but rather on the value to the employee of certain benefits.
Even leaving out the considerable disagreements over the calculation of pension costs, the inclusion of job security as a monetized figure in compensation is questionable. The AEI study says that security has a value of 10 percent of the pay. But that doesn’t translate to more money paid to the employee.
Whether it exists or not, job security is an intangible factor, like job satisfaction, that can't be spent, saved or taxed. It doesn’t put more dollars and cents into employee compensation.
We think it is misleading to include it in an accounting of what workers "make."
Also, the AEI study arrived at its 43 percent figure through rounding that we could not follow, and which the Center for Retirement Research questioned, after adding the 10 percent for job security to the 31.2 percent advantage in non-wage benefits it says that public workers have a 43 percent edge over their private sector counterparts.
And that 31.2 percent advantage -- whose calculation is the subject of considerable disagreement in the pension and financial worlds -- is more than three times the finding of the Center for Retirement Research.
On the Truth-O-Meter, we rate Building a Better Ohio’s claim Mostly False.
Building a Better Ohio, "Had Enough?" Oct. 14, 2011
Economic Policy Institute, "Are Ohio Public Employees Over-compensated?," Feb. 10, 2011
American Enterprise Institute, "Public vs. Private Sector Compensation in Ohio," Sept. 14, 2011
The Plain Dealer, "Ohio Business Roundtable study finds compensation gap favors public workers," Sept. 14, 2011
Center for Retirement Research at Boston College, "Comparing compensation: State-local versus private sector workers," September 2011
Economic Policy Institute, "Ohio public employees are not overcompensated: Rebutting a diversion from Senate Bill 5," Oct. 5, 2011
Email exchange with Building a Better Ohio press secretary Connie Wehrkamp, Oct. 18 and 20, 2011
Interview with Alicia Munnell and Josh Hurwitz, Center for Retirement Research at Boston College, Oct. 26, 2011
Interview with Dean Baker, Center for Economic Policy Research, Nov. 1, 2011
Interview with Josh Hurwitz, Center for Retirement Research, Nov. 1, 2011
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