“What Mr. Walker and his backers are trying to do is to make Wisconsin—and eventually, America—less of a functioning democracy and more of a third-world-style oligarchy.” New York Times columnist Paul Krugman was more theatrical than most in denouncing Act 10, the set of public-sector reforms signed by Wisconsin Governor Scott Walker (R) on March 11, 2011.
The spirit of Krugman’s denunciation, however, has been echoed by a broad coalition of labor activists, students, left-leaning political commentators, and Democratic politicians. Words such as radical, extreme, and even un-American have been used to describe Act 10.
The law itself has two major components. First, it requires public-sector workers to make larger contributions to their pensions and health benefits, effectively reducing their compensation. Second, Act 10 limits the power of public-sector unions by restricting collective bargaining for most workers and making dues collection more difficult.
Are these changes really unfair to public workers? In a new working paper, the American Enterprise Institute’s Andrew Biggs and I argue that they are not. Even following significant increases to pension and health insurance contributions mandated by Act 10, total public-sector compensation in Wisconsin remains comfortably ahead of compensation for private-sector workers with similar levels of education and experience. Specifically:
- Before Act 10, Wisconsin state workers received health benefits about 2.3 times as valuable and pension benefits about 5.7 times as valuable as what workers in large private firms receive. After Act 10, Wisconsin state workers still receive health benefits nearly twice as valuable and pension benefits more than 4.5 times as valuable.
- Before Act 10, Wisconsin state employees received total compensation (salary and benefits) about 29 percent higher than comparable private-sector workers. After Act 10, the compensation premium is about 22 percent.
- In dollar terms, the average Wisconsin state worker after Act 10 receives total compensation including benefits equal to $81,637, versus $67,068 for a similarly skilled private worker.
The conclusion is that Act 10 is far from a radical or sweeping reform. Its direct reductions to public-sector compensation still preserve a substantial premium for public workers, and its limitations on the political power of unions could reflect a reasonable desire to restrict the growth of compensation in the future. The Walker reforms may, in fact, be too moderate to restore pay parity between the public and private sectors in Wisconsin.
