Analysis: The Stark Gap in Benefit Costs in Public and Private Sectors in NJ and US

Click to access report

Click to access report

The Garden State Initiative today released The Stark Gap Between Public and Private Employee Benefits, an analysis of the latest employee compensation data from the U.S. Bureau of Labor Statistics which illustrates some dramatic differences in compensation costs between the public and private sectors. While it’s less surprising that government costs for retirement and medical benefits far exceed the private sector, the 50% differential in cost in New Jersey versus the rest of the US is startling. The analysis was conducted by Charles Steindel, Ph.D., a former New Jersey State Chief Economist and current resident scholar at Ramapo College.

“As policymakers in Trenton debate modernizing public employee benefits, having a firm grasp of the facts over political rhetoric is essential” said GSI’s president Regina M. Egea. “This data laden analysis clearly shows that the cost of public employee benefits in New Jersey far-exceeds those of other state government entities, let alone private sector employers. Any unwillingness to adapt New Jersey to the market realities of what it takes to compete with other states for jobs and residents just inhibits the growth of our economy.  New Jersey must significantly lower the cost of benefits of its public workforce if we are serious about attracting and retaining jobs.”

Some key takeaways from the report:

 Overview

  • A review of government BLS data demonstrates that public sector benefits are twice as costly when compared to their private sector peers.  And New Jersey sticks out as the cost of benefits for NJ’s public sector employers is 50% higher than the public sector in other states.

  •  In the US, average public sector benefits are $19.14 an hour, $8.81 more than private sector, or nearly twice as high. New Jersey government employers pay 50% more for benefits ($17.50 an hour) than the national average for public sector employers ($11.47 an hour)

 National Trends

  •  There is a noticeable difference between wages in the public and private sectors with public employees earning significantly more in wages. This reflects the requirement of  many public sector jobs for more education than a many private sector job.

  • Virtually all (95%) of the difference between public and private benefit costs—and about half the difference in overall compensation costs—is due to retirement (pension) and health care.

New Jersey

  •  Health Benefits:  The national average cost for public employee medical insurance is equal to about $12,000 a year. The cost to the employers of a typical New Jersey public worker plan is in the neighborhood of $20,000 a year per worker, which adds up to an additional $10 per hour in costs.

  •  Pension:  New Jersey’s $5 billion FY19 contribution to employee pension contributions was 60% of what was actuarially required and is equal to the average national costs of public employee pensions ($11,000).  However as has been claimed as a commitment to reach 100% of the actuarially required level, the NJ government contributions will be well above the national average—likely more than $15,000 a year per worker or 36% higher than today.

  •  Controlling New Jersey taxes will be dependent upon modernizing all benefit plans to be more competitive and thus curbing the growth of public employee benefit costs.