Last week I wrote about a series of posts from Sasha Volokh on the California rule for public pensions. Since then, he has added a post asking “Are public-sector employees ‘overpaid’?” This is a perennial question. Volokh mentions several studies on the issue and concludes, “I’m inclined to think that public-sector workers tend to be paid more once you consider the greater non-wage benefits, the value of job security, and the extra leisure, and that lower quit rates support this theory.”

Alicia Munnell, in her 2012 book State and Local Pensions: What Now?, also weighed in on the topic:

First, wages for workers with similar characteristics, education, and experience are lower for state and local workers than for those in the private sector. Virtually all researchers agree on this point. Second, pension and retiree health benefits for state and local workers roughly offset the wage penalty, so that, taken as a whole, compensation in the two sectors is roughly comparable. Most researchers agree on this point. The remaining issue is job security. Should it be viewed as a compensating differential, which perhaps offsets poor working conditions or a compressed wage structure, or should it be assigned a value and added to the compensation calculation? Third, the parity of compensation between the public and private sectors hides enormous variation by wage levels. State and local workers in the lowest third of the wage distribution are paid somewhat more than their private sector counterparts, those in the middle roughly comparable amounts, and those in the top third significantly less. Fourth, exercises using the Health and Retirement Study that relate lifetime employment patterns to outcomes at retirement show that those who spend most of their career in the state and local sector end up with more wealth and higher replacement rates than those who spend their entire career in the private sector. Short-term state and local workers actually appear to lose from the experience, ending up with less wealth and lower replacement rates than their private sector counterparts. (139-40)

For Munnell, “The relevant question is not whether one component of compensation is excessive but whether the total compensation package — including both wages and fringe benefits — is appropriate . . .” (139).

Indeed, wages and benefits should be considered together (whether you’re talking about public sector or private sector employees). As Volokh notes, pensions

. . . are a greater share of compensation for public-sector workers. Why is that? I suggest an answer in my own paper: “governments, free from the ERISA regulations that govern private employers, find it easier to promise generous pensions and then underfund them, leaving future generations to pick up the bill. Underfunded public employee pensions are thus a form of deficit spending.”

(And pension promises can crowd out other spending; as former state auditor Brian Sonntag writes in a recent Seattle Times op-ed, “As pension obligations rise, so does the risk of being unable to afford other public services.”)

How does the California rule fit in? As Volokh wrote,

In short, the California rule distorts what the salary/pension mix would otherwise be given employer and employee preferences and given the tax code as it is. Because underfunded pensions are a popular form of deficit spending, public employee compensation may already be too pension-heavy, and the rule makes it more so by freezing pensions in times of retrenchment.