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State Budget Deficits Are Not an Employee Compensation Problem

The Great Recession Is to Blame

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Read the full issue brief (CAP Action)

The conservative explanation for state budget deficits is that employee compensation for public-sector workers is out of control. But a close look at the facts demonstrates these claims are unjustified. Public-sector pay is not the cause of state budget deficits because public-sector compensation did not significantly increase in recent years. Instead, state tax revenues declined sharply amid the Great Recession—shortfalls made worse in some states by ill-advised tax cuts for businesses and the wealthy, as happened most famously in Wisconsin before its governor began pushing to eliminate public-sector collective bargaining rights.

To be sure, most states face severe budget problems—an average projected shortfall of 16.9 percent of fiscal year 2012 budgets. And there are some headline-grabbing cases of government employees receiving excessive wages and benefits. But budget shortfalls today were largely driven by the downturn in state revenue due to the Great Recession. State revenue is 12 percent below prerecession levels even as the demand for services and benefits such as unemployment insurance is high.

Indeed, an examination of state employee compensation shows just how little it has to do with state budget problems. Several previous studies find that public-sector employees make less than workers in comparable positions in the private sector. Public employees do have better health care and pensions—often needed to attract qualified employees to state government jobs such as police and firefighting. Even still, public-sector wages are significantly lower than those in the private sector, so total employee compensation is lower than in the private sector.

In addition, according to our analysis of state government expenditures, total state employee compensation, including wages and benefits, has not increased as a share of total state budget expenditures over the past 20 years. In fact, it has slightly decreased (see chart).

The upshot: State government workers are not taking an ever larger share of state budgets as conservatives claim, but instead receive less of state budgets today than they did 20 years ago.

Read the full issue brief (CAP Action)

To speak with our experts on this topic, please contact:

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