Ready, Disclaim, Fire

Earlier today, newly-elected Michigan Governor Rick Snyder released his "Citizens’ Guide to Michigan’s Economic Health." The general purpose was to provide an easy-to-understand presentation of the state’s finances, and to encourage local governments to do the same. These are of course laudable goals, but one of the report’s major findings, also mentioned in the governor’s press release, was a familiar one:

Average annual compensation of state employees (including salary, wages, and benefits) was over twice the average annual compensation of private sector workers in 2009.

I’ve already discussed how these gross comparisons of public and private sector workers – whether nationally or in a single state – are invalid. That is, they compare two completely different groups of workers: Public employees, who are mostly professionals, and private sector workers, many of whom work in lower-wage, lower-skill jobs. But this time, you don’t need to take my word for it. After featuring the “twice as much” finding in a header and pull-out quote, the governor’s report says it directly:

However, this analysis does not compare private and public sector employees with similar jobs, years of experience, or education.

Despite the report’s worthwhile overall goals, this featured finding not only seems designed to mislead, it actually suggests the opposite of what we know to be true. There is plenty of research demonstrating that most state employees actually earn less (salary + benefits), on average, than private sector workers with similar jobs, education, and experience; only workers in lower-skill jobs make more in government, and they are a minority. (Side note: the analysis in Governor Snyder’s report also includes all part-time workers, which makes it even more invalid, since private sector workers are more likely to work part-time, and would therefore earn less, and be less likely to receive benefits.)

Unfortunately, Governor Snyder is just the latest in a growing list of state executives who seem bent on fomenting resentment against public employees – using unsupportable conclusions from simplistic analyses to paint them as privileged "exploiters" who are to blame for budget shortfalls. As this latest report demonstrates, however, the “evidence” often consists of meaningless comparisons of two completely different groups of workers – the research equivalent of saying that IBM employees are overpaid because they earn more than WalMart associates.

Judging by the report’s data appendix, it seems that the state did not have (or did not use) the data needed to estimate simple models that control for education, experience, and the various other variables that could partially account for the compositional differences between workers in these two sectors. Instead, the Michigan report divides the total amount spent in the state on public and private sector compensation by the number of workers in each sector (full- and part-time).

Their results did permit a pseudo-accurate comparison of the change in compensation in each sector over time (though this is also problematic), but they were simply not equipped to compare compensation levels between sectors.

It was therefore remarkably irresponsible for them to feature this comparison in the report, disclaimer or not, especially within a document that is supposed to promote greater understanding of the state’s fiscal situation among average citizens. As the governor’s press release for the report noted, “A person shouldn’t have to be a CPA or an economist to understand how taxpayer dollars flow in and out of government."

No, they should not.