Public employers, especially state and local governments, who employ by far the largest share of public employees, have a hard time filling positions in a tight labor market. At the same time, many public employees face financial difficulties. Employers often have only limited room to quickly raise wages, but they can provide meaningful benefits that can boost their employees’ financial security and help their own recruitment efforts.
My colleague, Beth Almeida, and I recently wrote a report summarizing the financial situation of public employees. We conclude that a substantial share of public employees face financial difficulties, but that public employers are particularly well equipped to address those challenges. After all, public employers have regularly offered a wide range of benefits on a cost-effective basis. Public employees as a result have lower costs, better financial prospects for the future and thus in the end more savings.
Using data from a wide array of nationally representative data sources, we summarize several financial security measures. Many public employees struggle financially. Almost 20% of public employees, for example, skipped health care because they could not afford it in the years before the pandemic. This likelihood was even greater among single women, people of color, and people without a college degree. Moreover, almost one-third of public employees could not come up with $400 in an emergency in the years before the pandemic. And, 14% of public employees from 2017 to 2019 said that they could not pay all of their bills, which applied to 11.3% of people working in public education. While these are clearly minorities of public employees, this still reflect substantial shares struggling financially.
On the other hand, though, public employers already provide a wide range of benefits, which, together with other evidence, suggests that governments are well suited to reduce financial insecurity among their employees. Importantly, the overwhelming majority of public employees – 92% — had access to retirement plans from their employers in 2020. In most cases, those are defined benefit (DB) pensions. Many public employees also have supplemental retirement savings plans such as 403(b)s through their employers in addition to DB pensions. These retirement plans directly help public employees to build savings as they and their employers regularly contribute to many low-cost retirement options.
Public employees also have access to a wide range of non-retirement benefits. These benefits ultimately help people reduce the costs of unforeseeable or hard-to-plan-for events. They include health insurance, paid family and medical leave, and life insurance. While a majority of public employees receive those benefits, a substantial minority does not, leaving them financially vulnerable.
It is important to note that these additional benefits do not come at the cost of low savings outside of their employment relationship. Most public employees own their own house, for example, and about a third – 33.6% — own an Individual Retirement Account (IRA). Most public employees are then financially secure because they have access to benefits from their employers.
There are several reasons why the employment relationship in the public sector translates into financial security for most employees. First, employers pay for part of the benefits and thus boost current and future financial security for their employees. People working in public service have to worry less about how to pay their bills if they have such benefits in case something goes wrong. Second, public employers can and do provide efficient benefits, such that public employees often have to pay relatively low fees or face limited financial risks, for example, with their retirement savings. This means that public employees get to keep more of their savings for themselves. And third, public employment is fairly stable, offering public employees relatively predictable, steady careers. This gives employees some peace of mind and allows them to plan for their future. These psychological benefits make it more likely that people will save for their future, which is reflected in widespread homeownership among public employees, for example. We estimate, for example, that differences in income stability between public and private sector employees explain about one-fourth of the gap in total savings. The bottom line is that public employers have already built employment environments that are conducive to public employees building the foundation for their own financial security.
Our research provides a few key lessons. For one, the majority of public employees are financial secure because they have access to a wide range of benefits from their employers. Yet, a substantial share of public employees are still financially insecure. Public employers have the wherewithal to address this financial security by making sure that a wider range of employees have access to existing benefits. They could also provide additional benefits such as more emergency savings and telework, on top of higher pay and updated pay scales. There is no real alternative for public employers as they both want to make sure that their employees are financially taken care of and they need to recruit more people to fill holes in public employment to provide vital public services to people, businesses and communities.