Our next guest studies the differences between the retirement plans of public and private workers. Benefits for public workers have been one of the issues in the political showdown in Wisconsin and elsewhere.

Olivia Mitchell is a professor at the Wharton School at the University of Pennsylvania, and she says people in the private sector have pension envy.

Professor OLIVIA MITCHELL (University of Pennsylvania): There have been many efforts to try to compare the compensation of private and public sector workers and typically the results show the public sector workers do get paid more, not only in terms of wages and salaries, but especially in terms of retirement benefits, heath care benefits. Now, its a little bit hard to compare apples and oranges, because you have people in the private sector maybe earning higher wages and salaries. On the other hand, the public sector workers have early retirement, job security. It's a more well-cushioned lifestyle.

MONTAGNE: So what is the biggest issue in the public sector with these defined benefits, giving the economy? What's the biggest concern?

Prof. MITCHELL: Well, in a traditional defined-benefit pension, the employer makes a promise that you will get a stream of income when you retire until you die, and your spouse too, if you elect that. In order to meet that promise, the employer, and frequently the employee, makes contributions to that end.

The problem is that in many states and many cities those contributions have not been made over the years. Number two, the contributions that were made got invested heavily in the stock market, and as we know, these haven't been friendly times for stock market investments. And number three, we're all living longer than analyzed or estimated. So that the moneys running out, quite frankly.

MONTAGNE: And, you know, theres been a lot of talk about what that means. But what can or should or dare state and local governments and the federal government do about this?

Prof. MITCHELL: Well, for example, the city of Philadelphia has underfunded liabilities of about $17,000 per household that is in the whole city. New York City is up at $39,000, Chicago is up at $42,000. It's going to take about a quarter or perhaps a third of Philadelphia's annual city budget just to pay retiree benefits. The reality is...

MONTAGNE: Which sounds crazy.

Prof. MITCHELL: It's a huge problem. And the states - it's been estimated -have an underfunding level of about $3 trillion. Thats trillion with a T, dollars. It's really a problem across the board.

MONTAGNE: Is it a problem so far without a good solution?

Prof. MITCHELL: A number of states have tried to make inroads. Illinois, for example, raised the retirement age for public workers from 60 to 67. New Mexicos raised the number of years required from 25 to 30. But the reality is that we still have this enormous hole. And instead of being 30 years off, it's facing us today.

MONTAGNE: What does it say generally about the whole notion of retirement something thats been held very dear for at least half a century?

Prof. MITCHELL: Its certainly true that at the turn of the 1900s retirement was nothing that people aspired to. People essentially worked forever in whatever capacity they could. Then when the Social Security system, the Medicare system, private pensions came into play, retirement became that goal or objective, that the whole series of generations looked to.

As we increasingly live to 90, 100, even 110 years old, its just very difficult to finance 50 years of not working.

MONTAGNE: Thank you very much for joining us.

Prof. MITCHELL: My pleasure.

MONTAGNE: Olivia Mitchell is the executive director of the Pension Research Council at the Wharton School at the University of Pennsylvania.

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