A new issue brief from The Center for Retirement Research at Boston College compares retirement wealth for private employees versus their state and local government counterparts. The brief finds that overall, 65-year-old couples with a state-local worker do not end up with more wealth at retirement than their private sector counterparts. However, the results differ by tenure in the state-local sector: the one-third with long tenure has 11% to 18% more wealth at age 65; the other two-thirds have less wealth at age 65.
The report surmises that for long-tenure workers, the wealth gain may be more from having a defined benefit plan, which forces saving, than from having higher compensation.
“The compensation of public employees is a hot topic in the wake of the financial crisis,” the brief reads. “The conclusion was that wages for workers with similar characteristics, education, and experience were higher in the private sector than the public, but benefits for state-local workers roughly offset the wage penalty. Taken as a whole, compensation in the two sectors is roughly comparable.
The brief asks whether, at the end of the day, state-local employees end up with more wealth at retirement than their private sector counterparts. That is, it looks at the wealth of couples where the head is age 65 and tests, controlling for many other factors that could affect the outcome, whether state-local employment has a positive or negative effect on wealth and how that effect is related to tenure in the state-local sector.
The first section presents the data and methodology to estimate the impact of state-local employment on wealth at age 65.
The second section presents the results. They show that, as previously mentioned, 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.
The third section discusses issues raised by the analysis–the possibility that state-local workers retire early, the role of defined benefit plans and recent developments that might limit the applicability of the results to today’s environment.
The final section concludes that, despite some limitations, the results refute the notion that state-local workers as a group end up a lot richer than their private sector counterparts.