The research in this paper investigates whether state and local public employees are overpaid at the expense of taxpayers. Thirty-seven states are struggling with substantial budget deficits. Several governors have identified excessive public employee compensation as a major cause of their states’ fiscal duress.
The data analysis in this paper, however, indicate that public employees, both state and local government, are not overpaid. Comparisons controlling for education, experience, hours of work, organizational size, gender, race, ethnicity and disability, reveal no significant overpayment but a slight undercompensation of public employees when compared to private employee compensation costs on a per hour basis. On average, full-time state and local employees are undercompensated by 3.7%, in comparison to otherwise similar private-sector workers. The public employee compensation penalty is smaller for local government employees (1.8%) than state government workers (7.6%).