The Impact of Act 10 on Public Sector Compensation in Wisconsin

Abstract

After a protracted legal and political battle, on March 11, 2011 the Wisconsin state legislature passed Act 10, the Budget Repair Act, which increased public employee contributions toward pensions and health coverage and restricted union powers of collective bargaining and dues collection. This study analyzes public sector salaries and benefits in Wisconsin, with a particular focus on disentangling the risk-adjusted value of pension benefits offered in the public sector from accounting conventions that can understate the cost and value of defined benefit pension plans. We find that state and local government employees receive salaries roughly equal to those paid to private sector Wisconsin employees with similar education and experience or working in jobs with similar skill requirements. However, even following Act 10, pension benefits for Wisconsin public employees are roughly 4.5 times more valuable than private sector levels while health benefits are about twice as generous as those paid by larger private sector Wisconsin employers. This difference results in a combined salary-benefits compensation premium of around 22 percent for state workers over private sector workers, with varying but often larger pay advantages for local government employees.