Government raises lag private sector’s by most in 40 years. Will California pay workers more?

Private-sector wages grew nearly twice as fast as public-sector pay last year, according to a new analysis of federal data, creating new recruitment and retention challenges for public employers.

Private-sector wages increased 5% over 2021, compared with a 2.7% increase for state and local governments, according to a Pew Charitable Trusts analysis of the Labor Department’s Employment Cost Index published Monday.

That discrepancy between private and public wage growth was the largest measured in four decades, according to Pew’s analysis.

Most California state workers received pay raises of around 5% last year, broken out to roughly 2.5% for the fiscal year ending June 30, 2021 and an additional 2.5% for the prior fiscal year, when state workers’ pay was frozen amid pandemic budget fears.

Public sector wages aren’t keeping pace with inflation — which reached 7% for 2021 — the analysis states.

“Concerns over pay have compounded an already difficult situation for governments in recruiting and retaining staff and put additional strains on public services,” the analysis states.

Last year’s trends represent a reversal from the Great Recession, when public employees fared better than the private sector in general, according to the analysis.

The analysis comes as contract negotiations pick up for several California state employee unions with contracts that have expired or are expiring in June. Inflation likely will be a central issue at the bargaining table this year.

Among the state employee unions bargaining with Gov. Gavin Newsom’s administration this year are those representing state attorneys and judges, firefighters, engineers, scientists, HVAC workers and psychiatric technicians.

The Pew analysis looks at wages only, not factoring in the generous health and retirement benefits many public employees receive — most notably pensions and retiree health care.

Pensions are rare in the private sector. They are also tied to California’s long-term debts, which get bigger when wages grow.

The California Public Employees’ Retirement System has about 80% of the money it needs to cover all its long-term obligations, and charges the state extra each year under a long-term plan to get to full funding.

The amounts CalPERS bills the state under those long-term plans depend in part on wage growth. CalPERS assumes pay for different groups of state workers will grow by between about 3% and 3.75% per year, a figure that incorporates an inflation assumption of 2.75% per year.

If the state pays employees more than that, California’s long-term liabilities increase.

This story was originally published February 8, 2022 at 3:00 AM.