Recently, The Maine Heritage Policy Center released report that analyzed the compensation levels for private sector jobs and state and local government jobs. The report was titled The Government Gravy Train: An Analysis of Private versus Public Sector Compensation.
The results revealed that market forces do affect how much employers can compensate individuals for services rendered.
While private employers are subject to market forces which dictate how much they can afford to pay employees, state and local governments are only limited by how much revenue they can raise through taxation and borrowing. This difference goes a long way to explaining the compensation disparity and the high level of taxation in Maine.
Private versus Government
Employment compensation is comprised of two components. The first part is the wage or salary paid to the employee for services rendered. The second part is benefits—commonly health insurance, retirement, etc.—which are paid in addition to a wage or salary.
The report showed that in Maine it pays to work for the government, as government employees earn equal salaries and wages, but receive nearly twice the benefits.
In 2005, government sector employees on average received 12.6 percent higher overall compensation than private sector employees, or $43,487 versus $38,617. The Maine ratio between the two sectors was the 10th highest in the U.S.
On average in the U.S., government sector employees were compensated one percent higher.
A breakdown of compensation into salaries and wages and benefits showed that benefits are clearly driving the gap between the government and private sector.
In 2005, in Maine, public sector wages and salaries were 1.2 percent lower than the private sector, or $31,428 versus $31,812. During that same time period in Maine, the average benefits package for the public sector was 77.2 percent higher than the private sector, or $12,059 versus $6,805. The ratio was the fourth highest in the U.S.
Tax Implications
The report calculated the potential tax implications if in 2005, the ratio of private to public sector compensation had been reduced to the national average. Such a reduction would have shank the compensation gap to one percent from 12.6 percent. The potential tax savings would have been up to $392.2 million.
If Maine policymakers are serious about lowering taxes, they must look at bloated benefits packages and higher salaries paid to government employees. Simply reducing government compensation to the U.S. average would save taxpayers hundreds-of-millions of dollars. And even at the U.S. average, these employees would be earning more than private sector employees.
