What’s the “right” amount of pay for government workers? That’s a tough question, but the Center for Governmental Research offers some data to consider. A press release today ranks the states on how well they pay state workers¬†(PDF).

$48,342 per employee

The press release has three tables. Table A ranks states by “gross payroll” for their workers in 2010. Six states–all in the northeast, except for Alaska and California–come in at over $50,000 per employee. The seventh state, at $48,342, is … you guessed it, Minnesota. Following Minnesota is Rhode Island (another northeastern state), Illinois (perhaps the worst-managed state outside of California and New York), and Massachusetts. Wisconsin, by the way, is way down there, paying less than even Arkansas and Kentucky, at $36,413, but still, higher than 11 states.

$897 per resident

The second table in the press release ranks the states by how much each resident of the state, statistically speaking, pays out each year for state workers. In Minnesota, that number is $897, which is higher than that paid in 33 states. Residents of North Dakota ($1,243) and Iowa ($986) pay more, but residents of South Dakota ($798) and Wisconsin ($676) pay less.

Payroll shrank

The third and final table in the press release ranks states according to how much their total payroll costs increased from 2090 to 2011. Costs in Wyoming rose by over 8 percent, while Hawaii cut its payroll by over 7 percent. Minnesota cut its by 0.9 percent, putting it among the 17 states that saw payrolls shrink. Wisconsin’s went down by 3 percent, and Iowa’s went down by 0.5 percent. Payroll was up (0.7 percent) in North Dakota and South Dakota (5.2 percent).

So what’s it mean?

Do these numbers show that Minnesota’s state government workers are overpaid? Yes. Or perhaps no. The data compare states to states, but not government workers to private-sector workers. State government, like all employers, has to pay a wage that attracts a sufficient quality of workers to get the job done. If you want to hire someone with advanced skills in mathematical analysis, for example, you’re going to have to pay that person more than you would if you were going to hire someone to open the mail, regardless if you’re hiring for a government or a private business. My suspicion is that the most important problem with the Minnesota government payrolls is not that it’s too deep (“we pay people too much”) but that it’s too wide (“we hire too many people”). Whether or not that is so is a philosophical question about the scope of government as it is a numerical question of comparing numbers to numbers.

The Bureau of Labor Statistics says that in May 2010, the mean annual salary for “all occupations” in Minnesota was $45,470–less than the $48,432 for state works as compiled by the Center for Governmental Research.

So state workers are overpaid? Yes? Maybe. Consider, though, the possibility that the state government has a different mix of occupational needs than the economy as a whole: More number crunchers, fewer receptionists. Is this the case? I don’t know, honestly.

There’s another problem, though, and that is this: the State of Minnesota is a fundamentally different creature from any private sector company. Gary’s Graphic Design can go out of business. So can every other company. Even large companies are not immune from changes in taste, technology, and management skill that result in devastating job loss, if not liquidation. But the state can’t go out of business, which means all things equal, it can afford to pay less.

Include benefits, including health insurance, life insurance, days off, training opportunities, and the like, and pretty soon you’re dealing with a lot of factors to consider.

Minnesota Taxpayers Association and on pay and pension benefits

In October of last year, the Minnesota Taxpayers Association published a two-part analysis of public sector compensation in Minnesota, for both state and local governments. It offers some numbers that might help in reviewing the questions I raised above. It said that state employees were paid not seventh-based in the nation (the Center for Governmental Research), but fifth. The difference? The cost of living is lower here than it is in California and the Northeast, making employee dollars go further. It also said that when you classify employees by their educational achievements, Minnesota underpays the highly educated and overpays the less educated. In total, though, the state had higher employee costs (read: paid more) than the private sector in 71 percent of the jobs.

Contrary to my assertion above, the report said that¬†Minnesota actually has fewer state employees than the national average. But all is not well: employee compensation has been growing faster than the state government’s intake of money from “own funds” (that is, excluding federal money). The word for that, friends, is “unsustainable,” or to coin a term, “unsustainability.”

To bring this home to a subject that we’ve spent a lot of time on at the Minnesota Free Market Institute, the state pays more in pensions than the private sector does, in 30 of the 41 job sectors that association considered.

I’ll close with some remarks that the report made about pensions for state employees.

A 30-year state employee retiring at age 60 in 2009 with an average salary for that tenure and age could expect to receive almost $725,000 over his or her remaining life expectancy (22.4 years) from the MSRS General Plan in addition to what he or she could expect to receive from Social Security or other personal savings. That same employee would need over $400,000 in a 401(k) account yielding 5% return per year to provide a similar benefit. The 2008 median 401k account balance for a similar salaried, long-tenure participant in a defined contribution plan is $74,000.