Facts refute union objections to compensation analysis

April 29, 2013

By Ed Ring

“Jennifer Muir, a spokeswoman for the Orange County Employees’ Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center’s study was a politically motivated attack on public employees and unions. Aside from promoting the center’s anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage.”

— The Orange County Register, April 19, 2013

The study Muir refers to, “Irvine, California — City Employee Compensation Analysis,” was published on April 8, 2013, by the California Public Policy Center, where I am research director. To call this study “a politically motivated attack on public employees and unions,” as Muir alleges, is itself a distraction. It’s easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing.

As noted, Muir went on to accuse the study of “shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated.”

Facts

Let’s recap some of the facts regarding Irvine’s city employee compensation, drawing both from the CPPC study (which itself used payroll data provided by the City of Irvine), as well as from the Orange County Employee Retirement System’s 2011 Annual Report:

* The average City of Irvine employee receives direct pay of $95,751 per year, and when the cost of employer paid benefits is included, this average goes up to $143,691 per year (Source: CPPC Study, Table 1).

* The average participant in the Orange County Employee Retirement system who worked 25-30 years and retired last year collects a pension of $70,920 per year. If they worked 30 years or more, like virtually every private sector worker, that average goes up to $81,192 per year (Source: OCERS Annual Report, page 109).

Now let’s suppose that private industry employees are indeed being undercompensated. What are the economic implications of paying them a proper living wage ala Irvine — and every other unionized public sector job in California? Here are some facts:

* In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a public employee may reasonably be assumed to have logged 30 years — assuming they completed their education by age 25 and entered the workforce for a full career in public service (source: U.S. Census Bureau). Also in 2010, the GDP of California — its entire economic output — was $1.9 trillion (source: LA Times). This means that if everyone over the age of 55 in California got a pension of $70,000 per year, it would cost $581 billion per year, 31 percent of California’s entire economic output. Ms. Muir is invited to explain exactly how we’re going to accomplish this.

* Using the same census data, in 2010 there were 15.8 million people between the ages of 25 and 55. Assume that two-thirds of these people work full-time, and the other one-third are unemployed spouses, stay-at-home parents, or are otherwise supported by a working partner. If every one of these 10.5 million people collected total compensation of $140,000 per year, this would cost $1.47 trillion per year, or 77 percent of California’s entire economic output.

So according to this utopian vision, if everyone could just receive the same compensation packages as the average full-time worker for the City of Irvine, it would consume 108 percent of California’s entire economic output.

Real world

There’s a bit more to this, however. In the real world, wages and salaries fluctuate between around 44 percent and 54 percent of GDP (source: TelltaleChart.org). We may argue over what share of GDP legitimately belongs to workers vs. corporations — bearing in mind that corporate profits are an absolute necessity for a public sector pension plan to have any hope of remaining solvent, and these profits are also necessary to invest in equipment and conduct R&D if we are to have any hope of remaining an economically viable nation — but let’s use an unprecedentedly generous proportion. Let’s assume that 60 percent of California’s GDP is comprised of wages, benefits and pension payments.

To complete this thought, we’re now going to have to indulge in some basic algebra (T=trillion), one of those nasty tools of analysis that never plays well in a 30 second TV commercial, but nonetheless is an ideal tool to express cold quantitative reality, rather than utopian union fantasies:

[ .58T (pensions) + 1.47T (wages) ] / .6 (40% for corp. profits) = GDP of 3.48T

Isn’t that terrific? All we have to do is wave a wand and instantly, we’ll nearly double California’s GDP from $1.9 trillion per year to $3.5 trillion per year. Nobody will be “undercompensated” any more! Then we can afford to implement this compelling vision of social justice — total compensation of $140,000 per year for every full-time worker, then after 30 years, a pension of $70,000 per year. It should be easy. Perhaps new legislation is called for.