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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.

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For many city managers, it's easier to justify tacking a few fresh dollars onto locals' real estate tax bills than to try and slash the padding on a fireman's health insurance plan. City workers may pay 10% to 20% of a health plan's cost, compared with 30% in the private sector, but you win few local fans when you boost the burden on a teacher or policeman to prettify the municipal bottom line.

"It's too easy for the town manager to cave," says Edholm. "There's often no downside. He's not held accountable for the profitability of a firm. He's held accountable if the streets aren't swept, the roads aren't paved or the garbage isn't picked up. It's easier to cave in to union demands than to save $9 on everyone's local tax bill, if that's what it comes down to."

Many city workers are eligible for legacy health plans that aren't available to private-sector workers in any but the ritziest of jobs. Some such plans, for instance, offer 100% coverage for basic surgeries with little if any co-pay, whereas private plans may require a $250 to $500 co-pay per surgery. In Massachusetts, for example, many local government employees enjoy benefit plans that have long since been phased out for private employees, who have seen plan standards tighten consistently in recent years. Increasingly, private sector employees across the country end up in euphemistically dubbed "consumer-directed health plans" which typically cost companies less because of higher deductibles and more restrictive care options.

Cushy government benefits are beginning to clash with the fearsome reality of explosive state and local deficits. "Towns are starting to fight back," says Edholm. "They're drowning, and they realize they have to do something about it." Many municipalities and a majority of states now face serious budget shortfalls, and declining tax revenues are likely to result from the onset of a recession. That may force some tough choices. "Falling tax receipts resulting from a steep recession could change the budgetary requirements of state and local governments," says Bos. "Whether that will have an impact on services or benefits or wages remains to be seen. It will depend on the electorate's appetite for an increase in taxes."

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• Jeremy Caplan
• State jobs now beat working for a private company