ONE of the memes being thrown around over the past few years by advocates of reducing the power of public-sector unions has been the claim that public-sector workers are overpaid in comparison to their private-sector counterparts. I've always considered this an odd claim to hear, as I've been in the labour market for quite a long time and can't recall ever hearing anyone say they were going to work for a government bureaucracy because they wanted to make a lot of money. At crucial career-making junctures in life, people who want to get rich tend to enter corporate law rather than join the District Attorney's office, to work for internet companies rather than teach math in public high schools, and so forth.
All of this is coming up now because Wisconsin has become the showdown state for the public-sector union controversy, and Scott Walker, the governor, is claiming he needs to destroy the state's public-sector unions' ability to negotiate in order to deal with its budget shortfall. State workers, he says, are paid too much. But the Economic Policy Institute tells us that, in Wisconsin, public-sector workers are not in fact paid more than their private-sector counterparts. They're paid less. You can only make it appear that public-sector workers earn more by ignoring the fact that "both nationally and within Wisconsin, public sector workers are significantly more educated than their private sector counterparts."
Nationally, 54% of full-time state and local public sector workers hold at least a four-year college degree, compared with 35% of full-time private sector workers. In Wisconsin, the difference is even greater: 59% of full-time Wisconsin public sector workers hold at least a four-year college degree, compared with 30% of full-time private sector workers
....Public employees receive substantially lower wages, but much better benefits than their private sector counterparts. Wisconsin state and local governments pay public employees 14.2% lower annual wages than comparable private sector employees. On an hourly basis, they earn 10.7% less in wages. College-educated employees earn on average 28% less in wages and 25% less in total compensation in the public sector than in the private sector.
The EPI study does find there's a class of public-sector workers who earn a bit more than their private-sector counterparts: those without high-school degrees. In other words, district attorneys earn less than corporate lawyers, but janitors at the district attorney's office may earn more than janitors at a corporate law office—provided the government hasn't outsourced its facilities staff to the same private company the law office uses, which it may have, since governments have been targeting low-skilled workers for outsourcing precisely because that's how they can save money.
For most people who work for the government, however, the expectation is that your year-to-year salary will be lower, but your benefits will be better, in particular your pension. It turns out, however, that state governments won't have the money to pay a lot of those pensions. They're likely to renege on their promises, and Republicans in Congress want to allow them to declare bankruptcy in order to do so. (Funnily enough, this may be the one area in which labour unions and Wall Street are in alliance: neither one wants states to be allowed to declare bankruptcy.) In other words, as Ezra Klein points out, the public-sector employees got rooked: they accepted lower pay in exchange for retirement benefits, and now the retirement benefits look unlikely to come through.
Now, how can we explain the fact that public-sector employees are paid less than private-sector employees? After all, public-sector employees are heavily unionised, while private-sector employees aren't. Shouldn't those unions be winning public-sector employees better wages? Well, I don't really know; perhaps the fact that the government is a monopoly employer with staggering market power has something to do with it. But try considering how employees' wage negotiations with the government might look if there were no public-sector unions. In most lines of work, individuals' power to negotiate higher wages with large organisations is very limited. In government employment, individuals' power to negotiate higher wages is utterly non-existent. An individual teacher who bargains with a private school for a higher wage than her peers is going to have a tough negotiation on her hands; an individual teacher who tries to bargain with the City of Milwaukee for a higher wage than her peers is going to be laughed out of the superintendent's office. In his initial post on this subject, my colleague ventured that civil servants would constitute a powerful bloc able to protect their wages even without unions. I'm not really sure what this means. Through what mechanism are civil servants supposed to bargain for wage increases if they don't have unions? Who's supposed to do the bargaining?
Originally posted in The Economist Feb 21st 2011, 14:55 by M.S.
