In our work on public sector pay, Jason Richwine and I have tried to estimate the dollar value of the extra job security that public sector employees enjoy over private sector workers. This isn’t an easy thing to estimate for a variety of reasons, but we think our numbers—showing that public sector job security is worth an extra 1 to 3 percent of pay by itself, with a higher value if it protects a premium paid in wages or benefits—are plausible or even conservative.
However, a new paper on state and local government compensation by Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby of the Center for Retirement Research at Boston College raises the possibility that public employees may not have greater job security after all. (See here for a broader set of comments on the paper.) To test whether public employees have greater job security, the authors analyze whether public employment has dropped at a lower rate in recent years than private sector employment. The authors find that:
During this recession, employment in the state-local sector is down 3.1 percent since its peak, compared to 5.6 percent in the private sector. However, state-local workers should be expected to fare better given that 52 percent have a college degree—a category where employment has continued to grow—compared to only 35 percent in the private sector. In fact, the peak-to-present drops in employment for state-local and private sector workers can be projected almost perfectly based on the educational attainment of the respective sectors.
The authors concluded that “it is not clear that public sector workers have any greater job security than their private sector counterparts after accounting for their education level.”
Does this show that public employees don’t have greater job security than private sector workers? At a plain gut level, I don’t think so. After all, this would imply that public sector unions’ efforts dedicated to establishing and maintaining greater job security essentially went for naught. (It is ironic that think tanks like the Economic Policy Institute, which receives significant union funding, has dedicated so much research effort to claiming that public employees aren’t overpaid. Isn’t that what a union is supposed to do, get you better pay than the other guy?) Moreover, we have all read about difficulties in firing underperforming public employees—think of New York City’s infamous “rubber rooms” that house teachers who are too bad to have in a classroom, but too hard to fire—while examples from the private sector are pretty hard to come by. “Employment at will” may not mean precisely that anymore, but it certainly doesn’t mean a job for life.
Moreover, Jason and I found data—from the same source as the new paper referred to above, the Current Population Survey—that told a very different story. Over the last ten years, CPS data shows that the unemployment rate for state/local government employees nationwide averaged 2.1 percent, while for private sector workers with similar education and experience average unemployment was 5.5 percent, more than twice as high. By itself this may cast doubt on the conclusions drawn above. But how do our results coexist with those of the new study?
The answer may be in the following chart, which shows annual unemployment rates for state and local government workers relative to those of private sector workers with similar education and experience. Public employees have a lower unemployment rate on average compared to similar private sector workers, and this pattern holds in every individual year from 2001 through 2010. More importantly, however, the two lines run more or less parallel; that is, while public employees have lower unemployment, their unemployment rate rises and falls roughly in line with the private sector rate.
This fact reconciles our figures with those from the new study. If the two unemployment rates run roughly in parallel, then the percentage rise or fall in the public and private sector work forces should be similar from year to year even if public employees enjoy greater job security. (We might get a better fit if we assumed that public sector unemployment rate respond with a lag.) There is a long-term employment trend that affects both public and private sector rates. But within that trend there is a day-to-day pattern in which individuals are laid off or fired for poor performance, and in the public sector there are fewer of those involuntary discharges occurring.
That is the job security whose value we are attempting to calculate.