Want 50% more for your work? Get a government job. Private-sector employers may be cutting deeply into employee benefits, but for local and state governments, the gravy train rides on. Last year state and local governments spent an average of 51% more per employee on benefits and compensation than private-sector employers did, or $39.50 per hour worked versus $26.09, according to the Employee Benefits Research Institute. And the disparity continues to grow.
In Mercer's recent national survey of employers, overall health benefit costs rose 11.6% in 2008 for government employers, compared with just 6% for employers overall. High rates of unionization and collective bargaining account for some of the discrepancy, but weak watchdogs play a role too. (See "America's Health Checkup")
"The historical rationale for giving government employees better benefits was that they didn't get paid as well," says Jim Edholm, president of Better Benefits Insurance Inc., a benefit-consulting firm based in Andover, Mass. "That has long since lost its validity. Those employed by government agencies tend now to have richer total compensation packages than those in virtually any private industry."
On benefits alone, government entities spent 72.8% more per employee than private-sector employers last year. That's partly because government workers are more likely to participate in richer retirement and health plans. More than four in five government employees participates in a retirement plan, compared with just half of private-sector employees. And three quarters of government workers get health insurance benefits, compared with just half of private-sector employees.
Originally, health benefits were intended to draw in attractive job candidates. "The original story behind medical benefits was that companies wanted to attract family men," says Stacey Kole, a human resources expert at the University of Chicago Booth School of Business. "Because they perceived married men to be more stable and productive than those in the marriage market." Now that there is little differentiation among benefits across the private sector, many companies rely less on benefits in attracting ideal applicants. Even as private employers have cut back on their pensions and benefit promises, though, public entities, which make up 3% of all employers, have adhered to tradition in serving up generous lifetime packages.
The benefit gap continues to expand in part because governments face a steady ramping up of collective bargaining demands. "Decisions about benefits changes can't be made instantaneously as they can be in the private sector," says Blaine Bos, a consultant for Mercer based in Minneapolis, Minn. Instead, government agencies have to battle bit by bit for benefit trims that employees can collectively counter by marshaling great passion. In 2005 when California's Governor Schwarzenegger tried to radically reform the state's expensive pension plan, he met a firestorm of protest from unions, and ultimately backed down.