Thursday, April 30, 2009

Public Sector Benefits

A common justification for the exorbitant pension and benefit plans public workers get is that these employees are relatively underpaid during their working careers (and thus they have to make up for it during retirement). This article disputes this notion:
In defending the pensions, supporters say public workers, especially professionals in high-paying fields such as lawyers, doctors and engineers, earn less than private employees in exchange for better job security and benefits. Most also will not get Social Security, having not paid into the federal plan.

"City employees give up a lot to work for the city," said former Cincinnati Safety Director William Gustavson, an attorney who represents retirees watching City Council as it considers possible changes to pension and health benefits. "Being able to count on a good pension and benefits is part of the trade off."

U.S. Bureau of Labor Statistics data contradict that argument, showing that local and state workers earn an average of $25.30 an hour, 33 percent more than the private sector's $19. Among professionals such as lawyers and teachers, public-sector hourly salaries averaged $31.51, almost identical to the private sector's $31.75, according to BLS figures for 2007. Blue-collar public employees easily out-earn private workers, averaging $16.72 per hour compared to $9.87.

A 2008 study by the Employee Benefit Research Institute, a nonpartisan Washington study group, found that including wages and benefits, total compensation costs for local and state workers were 51 percent higher than those of private employees.
If we added studies of government worker productivity to this, I bet that public workers get paid more than double what private workers do on an output basis.

Economically, it stands to reason that government can only over-pay for its workers: if they offer less than market rates, they’ll have no employees, since candidates will go elsewhere. And because there’s no market mechanism to make governments care about their costs (i.e. governments don’t work for a profit) there’s no constraint on how much they’ll spend. So the easy way to get employees is to offer (way) above-market rates to its employees, with the taxpayer footing the bill. And according to this article, that’s exactly what governments do. (Guess how this plays out with all the “stimulus” spending government is doing in your name?)

But although the outcome was predictable by economic arguments, the real question is, why is government engaged in most of its activities anyways? (I.e. why is it doing anything beyond maintaining the peace via the police, courts and armed services?) That question is fundamentally a moral one, because to answer it, one first has to answer the question “what is good for man?”. Objectivism answers that the good is that which permits each individual man to survive, viz. the free use of his rational mind. The political organization of society follows from there, including the very limited role of government. Were we to adopt these ideas, there would be no issue of determining the pay of most current public workers — they'd be part of the private sector and thus would have to prove their worth on a market just as do most of us.

4 Comments:

Blogger Lee said...

Amit,

I think instead of platitudes about what would be best in the long run (and I agree with your assessment of what is best) I think a more productive point would be to advocate for actually offering contract services to government entities to undercut the costs of government employees. Offering a local or state government the opportunity to replace a service currently provided by a $31.50 an-hour government worker with a private sector contract employee at a substantially lower rate should be popular with elected leaders looking to shrink the bottom line of expenditures. Although it would be unpopular with the larger classes of government employees, initial steps in this direction with smaller groups and specialties will serve to isolate and eventually weaken the support of those dug in like ticks on our backs (teachers' unions, etc).

Amit, I think you should take the opportunity at every turn to focus reaching the ideal of "what is right for man" by offering a practical set of first steps. In this case I suggest:

1) Identify a government service better addressed by the private sector (cost effective) in your community.

2) Address the issue at your city council meeting or in an available public forum or in the press or with your neighbor or door-to-door.

3) Identify the companies or individual entrepreneurs willing to take up the challenge because they see profit in it; or establish the ability to provide the service yourself.

4) Offer the service at a lower cost and be ready to execute.

Ceritus peribus, the service will then be privatized and we will all be one small step closer to reaching the ideal of "what is right for man". If there is a problem with step three then advocate for the service to be dropped if it is not necessary (like city Christmas tree or fall leaf removal).

A potential problem arises when outside factors (capricious politics, unconstitutional preferences, and/or arbitrary barriers to free competition) sabotage an honest attempt to engage in free enterprise in this direction. Fortunately, if the business plan was good, the capital was available, and the capacity to execute the proposal can be proved, there is an outlet for rectification in the courts. At least I think so - I'm no lawyer.

Thanks for your time,
Lee
(Government Employee)

6:45 AM  
Blogger Amit Ghate said...

Thanks for your comments Lee. I agree with your ideas, but don't see it as an either/or situation. Rather, I think there's a top down approach and a bottom's up approach to all these types of issues. Both have their place and both will reinforce one another. The top down approach is to view yourself as a philosophical "wholesaler" (I forget where that term comes from). Establish the general principles and then work to implement them, all the while drawing inspiration and confirmation from the sectors where "bottom-up" progress is being made.

For bottom's up activism, it's the other way around. Learn the details of a particular subject and then implement slow but steady improvements to the field, all the while drawing principles and inspiration from those working on the wholesale level.

7:17 AM  
Anonymous Lucy Hugel said...

Excellent post, Amit.

In response to Lee's comment, I would like to point out that many government services are already subcontracted out, and that is not necessarily a guarantee that they are cost-cutting measures in the long term.

To address the financial point - as long as the government is the middle-man, there will be widespread inefficiencies and waste. As long as the government, with its deep pockets of endless money coming from "somewhere" and its subsequent lack of incentive to stick to a budget, is the "customer" of these private sector subcontracted parties, there will be a constant tendency to overcharge and overspend.

Another issue is alluded to by Lee, who notes the approach would be "unpopular" with many voters. I think that is an understatement, but it suggests why understanding the moral issue is so important. Unless people generally understand *why* the policies of our current big gov't, welfare state are wrong, we won't have enough pressure on our politicians to reduce the scope of gov't. It will be too easy to badmouth taxes one day while demanding services the next, unless they understand the moral issue.

Unless people come to understand the deeper moral reasons why the government should not be telling us how to educate kids, what to eat, what medicines to take, where we can smoke, how to run our companies, where we can build houses, how many hours we have to "volunteer" ETC. (and employing hundreds of thousands of workers to enact these policies), then changing an isolated contract here and there won't make much difference.

It will be like trying to fill a bucket using only an eyedropper to put water in...only to find at the end of a few decades that there was a gaping hole in the bottom of the bucket.

So, I think Amit's approach is necessary. Many conservative types oppose this measure or that one while again and again conceding the basic issue - do we have a right to our own lives and property, or not? Is egoism proper on principle, or do they just want "altruism-lite"? As long as it's the latter, we'll just be spinning our wheels to focus all our attention on the specifics.

Indeed, some understanding of the moral issues is necessary even to make possible the first steps toward practical change. And I'm not saying one should not advocate for change on specific issues, topics, etc. All sorts of intellectual activism can be valuable. But without an understanding of the deeper ideas, no particular action on a particular gov't expense will *ever* result in lasting change.

Thanks again.

10:21 AM  
Blogger Amit Ghate said...

Thanks very much for your comment, Lucy! It really helps spell out the issues.

1:16 PM  

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