For decades, public sector unions have peddled the fantasy that government employees were paid less than their counterparts in the private sector. In fact, the pay disparity is the other way around. Government workers, especially at the federal level, make salaries that are scandalously higher than those paid to private sector workers. And let's not forget private sector workers not only have to be sufficiently productive to earn their paychecks, they also must pay the taxes that support the more generous jobs in the public sector.

Data compiled by the Commerce Department's Bureau of Economic Analysis reveals the extent of the pay gap between federal and private workers. As of 2008, the average federal salary was $119,982, compared with $59,909 for the average private sector employee. In other words, the average federal bureaucrat makes twice as much as the average working taxpayer. Add the value of benefits like health care and pensions, and the gap grows even bigger. The average federal employee's benefits add $40,785 to his annual total compensation, whereas the average working taxpayer's benefits increase his total compensation by only $9,881. In other words, federal workers are paid on average salaries that are twice as generous as those in the private sector, and they receive benefits that are four times greater......

It turns out there really is growing inequality in America. It's the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate these pay inequities that enrich the few who wield political power.

Let's walk through the math. In 2008 almost half of all state and local government expenditures, or an estimated $1.1 trillion, went toward the pay and benefits of public workers. According to the BLS, in 2009 the average state or local public employee received $39.66 in total compensation per hour versus $27.42 for private workers. This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.

The BLS study breaks down where that 45% premium comes from. It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked. But the real windfall for government workers is in benefits. Those are 70% higher than what standard private employers offer, as shown in the nearby table. Government health benefits are twice as generous as what workers employed by private employees earn. By the way, nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive.

What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.

In a separate survey, the federal Bureau of Economic Analysis compares the compensation of public versus private workers in each of the 50 states. Perhaps not coincidentally, the pay gap is widest in states that have the biggest budget deficits, such as New Jersey, Nevada and Hawaii. Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers.

But these current fiscal problems are a picnic compared to the long-term benefit commitments that state and local politicians have made to public retirees. A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.

The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.

Illinois's pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.

California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.

As the Columbus Dispatch reported last year: "Across the state, Ohio's State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan." Some teachers can earn nearly $200,000 a year in pensions and salaries.

The union response is that government workers deserve all this because they are more educated and highly skilled. That may account for some of the pay differential but not the blowout benefits. The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off.

If government workers were underpaid, we'd expect high attrition rates, as they pursued better private opportunities. The reality is the opposite. Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers.

So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America's privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It's time to close the biggest pay gap in America.

By MORTIMER ZUCKERMAN

The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public-sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.

The political backlash has energized the tea party activists, put incumbents at risk in both parties, and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year, the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities, a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the budget gap is more than 30%.

How did we get into such a mess? States have always had to cope with volatility in the size and composition of their populations. Now we have shrinking tax bases caused by recession and extra costs imposed on states to pay for Medicaid in the federal health-care program. The straw (well, more like an iron beam) that breaks the camel's back is the unfunded portions of state pension plans, health care and other retirement benefits promised to public-sector employees. And federal government assistance to states is falling—down by roughly half in the next fiscal year beginning Oct. 1.

It is galling for private-sector workers to see so many public-sector workers thriving because of the power their unions exercise. Take California. Investigative journalist Steve Malanga points out in the City Journal that California's schoolteachers are the nation's highest paid; its prison guards can make six-figure salaries; many state workers retire at 55 with pensions that are higher than the base pay they got most of their working lives.

All this when California endures an unemployment rate steeper than the nation's. It will get worse. There's an exodus of firms that want to escape California's high taxes, stifling regulations, and recurring budget crises. When Cisco CEO John Chambers says he will not build any more facilities in California you know the state is in trouble.

The business community and a growing portion of the public now understand the dynamics that discriminate against the private sector. Public unions organize voting campaigns for politicians who, on election, repay their benefactors by approving salaries and benefits for the public sector, irrespective of whether they are sustainable. And what is happening in California is happening in slower motion in the rest of the country. It's no doubt one of the reasons the Pew Research Center this year reported that support for labor unions generally has plummeted "amid growing public skepticism about unions' power and purpose."

In New York, public-service employees have received gold-plated perks for much of the 20th century, especially generous health-insurance benefits. Indeed, where once salaries were lower in the public sector, the salary gaps in the public and private sectors have disappeared or even reversed.

A Citizens Budget Commission report in 2005 showed that for most job categories in the greater New York City region, public-sector workers received higher hourly wages than private-sector workers. And according to a 2009 survey by the same group, this doesn't even count the money that New York City pays in full premiums for comprehensive health-insurance policies for workers and their families. Only 8% of workers in private firms enjoy that subsidy. In virtually all cases, the city also pays the full health-care premium costs for retirees and their spouses. And city pensions are "defined benefit" plans, which are more expensive since they guarantee specific benefits on retirement.

By contrast, private-sector workers in the survey were mostly in "defined contribution" plans, which means that, unlike their cushioned brethren in the public sector, they do not have a predetermined benefit at retirement. If New York City were to require its current workers to pay contributions toward health insurance equal to the amounts paid by the employees of local private-sector firms, the taxpayer savings would be $628 million a year. In New Jersey, Gov. Christie says government employee health benefits are 41% more expensive than those of the average Fortune 500 company.

What we suffer is a ruinously expensive collaboration between elected officials and unionized state and local workers, purchased with taxpayer money. "Scratch my back and I'll scratch yours."

No wonder the Service Employees International Union has become the nation's fastest-growing union: It represents government and health-care workers. Half of its 700,000 California members are government employees. More and more, it wins not on the picket line but at the negotiating table, where it backs up traditional strong-arming with political power. It spends vast amounts of money on initiatives that keep the government growing and the gravy flowing.

The state's teachers unions operate in a similar fashion—with the result that California's various municipalities, especially Los Angeles, face budget shortfalls in the hundreds of millions of dollars. California can no longer rely on a strong economy to support this munificence. Its unemployment rate of 12.5% runs several points higher than the national rate and its high-tech companies are choosing to expand elsewhere. Why stay in a state with such higher taxes and a cumbersome regulatory environment?

California is a horrible warning of how dreams can turn to dust. In most states, politicians face a contracting local economy and shortfalls in tax receipts. Naturally, they look to cut expenses but run into obstruction from politically powerful unions that represent state and local government employees, teachers and health-care workers who have themselves caused pension and health-care insurance costs to soar. It is not an accident that in framing the national stimulus program in 2009 Congress directed a stunning $275 billion of the $787 billion as grants to the states to support public-service employees in health care, education, etc.

The lopsided subsidies for pension and health costs are a large part of the fiscal crises at the state and local levels. The subsequent squeeze on education and infrastructure investment is undermining the very programs that have made it possible for our economy to grow.

Between New York and California, the projected deficits run about $40 billion—and that doesn't account for projected billions of dollars in the operating deficits in the states' mass transit systems or the multibillion-dollar unfunded liability in many of the state pension plans. New York would be badly hit because it is on the verge of being deprived of tax revenues by Washington's increased regulations on the financial industry, especially the hugely profitable, multitrillion-dollar market in derivatives—an industry that is critical to the economy of New York state and the country.

City government was developed to serve its citizens. Today the citizenry is working in large part to serve the government. It is always hard to shrink government spending. It is particularly difficult when public-sector unions have such a unique lever of pressure.

We have to escape this cycle or it will crush us. One way is to take labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. They would have a better shot at achieving a fair balance between appropriate salary increases and the revenues and services of local municipalities. The electorate won't swallow any more red ink.