Disparities in ‘Unequal Pay’ study spark debate
By Michael Bradley
Special to Delaware Business Times
If you want to get Delaware State Chamber of Commerce President Rich Heffron agitated, tell him you think the study released in April by the Delaware Public Policy Institute about disparities in compensation between state and private employees is politically biased.
Then, tell him you haven’t read the results.
“Go read it!” he will likely bark. “It’s just giving the facts. Those are the real numbers.”
Since its release, the study, titled “Unequal Pay: Comparing State & Private Sector Employee Compensation in Delaware,” has generated plenty of interest and no shortage of discussion on both sides of the aisle. Those claiming that the work is unfair refer to its springing forth from Dr. Andrew Biggs of the American Enterprise Institute, a D.C.-based think tank that bills itself as “nonpartisan” but does lean right. Many who look at it as a revelatory document, capable of explaining why the state will likely run a budget deficit this year, see it as a call to action.
But nobody can deny that it has created plenty of discussion about what to do next.
“It’s just the facts,” said Heffron, who has been Chamber president for four years and was its chief lobbyist for 21. “You can refuse to believe them, but the numbers are what the numbers are.
“I think a lot of people are taking this seriously. I’ve had a couple people on both sides of the aisle come to me and say, “˜We know this is a problem.’ “
The study’s most important information pertains to the figures that demonstrate the disparity between the compensation received by state and private workers. Although private employees receive larger salaries than their counterparts (by 12.4 percent), the health-care and pension benefits received by government employees push their overall packages ahead of those in the private sector by between 8.5 and 23.3 percent. That translates to between $6,716 and $18,383 per year higher than what employees in the private sector would receive.
The average salary of $48,967 is lower than the $55,039 received in the private business world, but the benefits – $36,563 to $48,230 per year – are greater than the $23,775 figure earned by the others.
“Clearly, what we thought we knew was accurate,” said Bob Perkins, a business consultant and Chairman of the Board of DPPI.
According to the study, Delaware has the highest compensation differential of public vs. private sectors of any of the 13 states in the country with AAA bond ratings. If that were to continue, according to Perkins, the state’s deficit could grow significantly and threaten its good credit status. “You never want to be at the top of a list like that,” he said.
Heffron said the four largest expenses for a state are education, corrections, medical costs and personnel expenditures. It’s hard to contain the first two without limiting birth rates or controlling crime significantly, and no one has yet figured out a way to make health care more affordable. That leaves the compensation for state workers, and Heffron said the study proves it’s time to have some difficult conversations. He estimates this year will bring “between a $2-$400 million budget shortfall.” Something has to be done to make sure that doesn’t continue to grow moving forward.
“We have to make it up somewhere,” Heffron said. “It will be unpopular, but when you’re facing that kind of a shortfall, whatever you do is unpopular. If you raise taxes or cut costs, people will be unhappy. We have to make some tough decisions.”
Dr. Biggs, who conducted the study for AEI, likens the level of health care received by government workers to the “gold plan” on the Obamacare continuum. That may be an area where a compromise can be reached with workers. Perhaps dropping the plan level down to a point where deductibles increase some, or asking for employee contributions, in return for a salary boost, could work out.
“Does it make sense to spend so much on health care?” Biggs asks. “Probably not. If the state said, “˜We’ll give you less for health care and more for wages,’ I would take the wages.”
There is a public perception that could make that difficult. Since the average taxpayer doesn’t understand the impact of high-level benefits on total compensation and only focuses on wages, a pay hike could be unpopular. But if the state sold it as a cutback in healthcare costs and could demonstrate the savings, then people might accept it. “The public and the workers might go for it,” Biggs said.
Nothing moves at a rapid speed in the legislative world, so expecting the report’s April release to trigger June action was asking too much. But Perkins said he expects elected officials to look at all means of eliminating deficits moving forward.
“As the state assembly looks at the totality of the state budget, I hope they take this information into consideration, before they slap a couple extra points onto the income tax,” he said. “In the long term, we really have to look at this.
“It’s one of those topics we’re going to have to have a long-term discussion about, with various steps along the way that begins to move us in the right direction. It’s not easily or quickly solved.”
Whenever any budgetary limitations or revenue enhancements are considered, there will be complaints and criticisms, but fixing complicated problems requires some sacrifice. Since the government is the No. 1 employer in Delaware, the compensation gap is an extremely important issue. The ability to reach some kind of compromise that controls health care and pension costs is vital for future fiscal balance.
“By 2026, we could be another billion dollars in the hole,” Heffron said. “As health-care costs rise, obviously the cost to the state rises, too.
“Others in the business world have had to do this. It’s not easy to sit in front of employees and tell them their deductibles have to go up, or they’ll have to pick up some of the cost of healthcare. Nobody likes this, but we have to do it.”
No one knows yet what solution – if any – will be crafted, but it’s clear the DPPI study has drawn considerable interest.