Employee Compensation Drives Spending Growth

PennLive released a list of state government employees earning more than $100,000 in salary today. While the list should open some eyes, it doesn’t capture the full cost of state employees. Employee benefits, not salaries, are the bigger cost-driver.

In the past year alone, total compensation per state worker increased by more than $4,400—even though the average salary per employee declined. 

In 2015-16, total compensation per state worker reached more than $97,000 per employee, driven by skyrocketing employee benefits over the past decade. While state employee salaries have risen by 1.4 percent since 2007 (in inflation-adjusted dollars), average benefits per employee have increased by an astonishing 76.8 percent.

Benefits per employee now represent 80 percent of the cost of salary—a stunning figure compared to the private sector norm of 43.2 percent.

Commonwealth Agency Employment & Compensation (Inflation-Adjusted 2016 Dollars)

Source: Office of Administration, "2017 State Government Workforce Statistics."  The report details statistics for agencies under the PA governor's jurisdiction.

The biggest increases in the past year were in pension and retiree health care costs. Employee health care and workers’ compensation have also increased dramatically over the past decade.

This puts added strain on the state budget and highlights the pressing need for transformative pension reform. Even though there are 4,200 fewer employees under the governor’s jurisdiction, the total cost for these employees grew by $2.1 billion in the last ten years.

See the chart below for more details.

Lawmakers can address this disparity and rein in the costs of government by bringing public employee benefits in line with the private sector.

For example, moving all new employees to a 401(k)-style retirement plan, which is what is offered to most private sector workers, will lower future costs while offering employees more control over their retirements.  

Promoting parity between private and public sector medical plans is another way to close the compensation gap. According to data obtained from the Office of Administration, public employee contributions are projected to cover approximately 11.3 percent of state health care expenditures. In contrast, private sector employees pay about 20 percent for their share of insurance coverage. 

Aligning public sector benefits with those found in the private sector can help reduce compensation inequality and prevent more tax hikes on working families.