Retirement Not Better for Government Workers

The researchers’ analysis shows that those with state-local employment who spent more than half their career as a public worker – about one-third of the total group – had 11% to 18% more wealth at age 65 than similar private sector couples. The other two-thirds of those with state-local employment who spent less than half their career as a public worker ended up with less wealth than private sector employees.   

According to the report, that households with a long-tenured state-local work­er end up with greater wealth than households with a history of private sector employment could reflect ei­ther that 1) they received more in total compensation; or 2) they worked in a defined benefit environment where they were forced to save. Seventy-eight percent of state-local households in the sample receive a defined benefit pension compared to 59% of private sec­tor households.   

To test the importance of being covered by a defined benefit plan, the researchers re-estimated the equation, including a variable indicating the receipt of a defined benefit pension. The results show that the advantage of being a long-tenured state-local worker disappears totally for men, as the coefficient is not significantly different from zero. In the case of women, the effect remains, but is reduced. This finding is not surprising given that women’s relative wages are higher in the public sector than in the private sector, the report said.  In any event, the results suggest that wealth comparisons between state-local and private sector workers are influenced by the disci­pline imposed by the pension structure.  

The analysis covers the period 1996-2006, and the question is the extent to which it reflects current cir­cumstances. The Brief noted that a number of changes have occurred in the intervening period. For example, today’s private sector retirees are less likely to have a defined benefit plan and retiree health insurance than their coun­terparts in the past, which would suggest that their situation has worsened compared to public employ­ees. On the other hand, public sector wages relative to those in the private sector have declined over time, and recently government sponsors have increased employee contributions to pensions, cut cost-of-living adjustments, reduced benefits for new employees, and raised employee premiums and co-payments for retiree health, which would shift the balance in the other direction. On balance, it is unclear how recent developments would affect the picture.