NCPA - National Center for Policy Analysis

Pension Benefits Have Grown Faster in Public Sector than Private

May 9, 2011

As debates heat up in states across the country over budget shortfalls, more and more focus is being placed upon the runaway growth in health and pension benefits for state and local government workers.  These excessive benefits are a major factor behind the exploding costs of government in many states.  It is time to bring these costs under control before they completely overwhelm state and local budgets, say Andrew G. Atkeson and William E. Simon, Jr., professors at the University of California at Los Angeles, and James E. Piereson, a senior fellow at the Manhattan Institute.

  • The pension benefits paid out to retirees by state and local governments have more than doubled from 11.1 percent of payroll in 1990 to 23.8 percent of payroll in 2009.
  • By contrast, pension payouts in private industry grew only from 6.1 percent of payroll in 1990 to 9.8 percent in 2009.

The growth in state and local pension payouts relative to current payroll has been driven by steady increases in the generosity of pension agreements rather than by the aging of the state and local government workforce.

  • In 1993, retirement benefits paid out to state and local government retirees averaged $10,812 per year per beneficiary nationwide, or 35 percent of the $30,870 in wages and salaries paid out to the average full time employee.
  • By 2008, average retirement benefits per public retiree had grown to $23,225, or 45 percent of the $52,058 in wages and salaries paid out to the average employee.

The pattern is clear: pension and health benefits have grown much faster in the public than in the private sector, regardless of budget shortfalls.  The solution is to make the negotiating process more transparent and to apply some of the approaches that have worked successfully in the private sector to control costs and to maintain the solvency of retirement programs, say Atkeson, Simon and Piereson.

Source: Andrew G. Atkeson, William E. Simon, Jr., and James E. Piereson, "Let the Sun Shine In On Public Pensions, Benefits," Investor's Business Daily, May 3, 2011.

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