Notes From Babel

Are Public Employees Underpaid?

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In my previous post, I argued that it was indefensible to suggest, as the left recently has, that Republicans’ attempts to reform public employee unions is purely politically motivated.  Specifically, I argued that to make this claim, the left ignores a vast record replete with documented abuses caused by public sector unions.  The left’s argument, then, lacks merit:  There must be an account made of these abuses before the left can plausibly suggest there could be no other reason for the right’s effort to reform public sector unions.

One of the criticisms of public sector unions is that they have resulted in compensation levels in excess of the private sector.  The left objects that this criticism fails to account for disparate education levels in the public and private sectors.  While this is essentially a question to be settled by an economic analysis—which I do not purport to provide here—a little digging indicates that many factors and much subjectivity and speculation goes into answering this question one way or another.  Thus, the left’s focus on education levels is not a silver bullet that can fully explain or justify public employee compensation levels.

Yet, this is just what is happening in the debate in Wisconsin.  With respect to Wisconsin compensation levels, Menzie Chinn provides this graph in support of the conclusion that the public sector provides less compensation than the private sector.  The blue bars indicate private sector compensation; the red public sector compensation:

First, remember that what taxpayers are concerned about is that public employees are receiving more and better compensation for similar work, and that this disparity is the result of public sector unions.  Neither Chinn’s post nor Jeffrey Keefe’s study on which it’s based attempt to correlate work and compensation.  Similarly, they fail to discuss the effect public sector unions have had in moving up the level of compensation.  Thus, taxpayers still have no way of knowing whether government workers are paid fairly with respect to the quality or quantity of work they do, or what role public unions play.

Chinn’s graph also indicates a potentially shocking data point with respect to professional degrees.  However, such employees are unlikely to be unionized; the Keefe study does not indicate one way or another.  Moreover, according to Table 1 in the study, 29% of public employees have post-graduate degrees, whereas only 7% of private employees do. This raises the obvious question of whether such highly skilled employees are necessary.  Also, the fact that workers with advanced degrees—who thus could earn significantly more in the private sector—would still opt for public employment strongly suggests that the work, hours, prestige, lifestyle, benefits, and other factors offered by government work make it worth their while.  It should also not be overlooked that educated workers have implicitly greater bargaining power, given their unique skillsets, and thus traditionally have not needed the bargaining influence of unions.  Thus, the emphasis on the education factor with respect to post-graduate education seems to be potentially misleading.

As to the education’s role in public employment more generally, several other relevant factors and questions go unaccounted for and unanswered in Chinn’s graph and Keefe’s white paper, including:

  • The true value of the workers’ product. Chinn and Keefe appear to treat education as the determinative factor of an employee’s value.
  • Whether additional education is necessary.  Indeed, the paper focuses solely on education level, and provides no information about what jobs the individuals at those various education levels typically have.
  • Serious discrepancies in the values concerning compensation.  According to numbers provided by the Wisconsin Department of Public Instruction, the average public school teacher receives compensation just under $75,000 per year.  Administrative compensation is more than $107,000.  This lines up better with reports of public sector union abuse across the nation (Joe Klein at Time recalls that school janitors in New York 30 years ago were paid $60,000 a year, and still negotiated their way out of mopping the cafeteria floor more than once a week). Keefe does not indicate where he derived the values used in his study.
  • Job security.  The public sector layoff and discharge rate is only about one-third of the private-sector rate.
  • The prestige factor.  Lawyers in particular actively seek out law jobs in government, as they provide a unique experience and excellent mobility into academia, the private sector, or other government work.  Not to mention more humane hours.
  • Work hours and lifestyle.  Cato reports that private-sector employees nationally worked an average of 2,050 hours in 2008, 12 percent more than the 1,825 hours worked by the average public-sector employee. (While in law school and looking for jobs, I very seriously considered working for the county, which offers fixed hours and Fridays off twice a month.)
  • The fact that many teachers work just 9-10 months out of the year.
  • The rising number of public employees.
  • Low turn over.  California’s exceptionally generous prison guards union boasts an annual turnover rate of just 3.6%, while other states’ turnover rates among correctional officers hover around 20%.
  • The attractiveness and value of defined benefit rather than defined contribution pensions.

Also, here in California, the California Department of Corrections and Rehabilitation (CDCR) boasts it has made public employment in the corrections system “the greatest entry level job in California,” and that "[a]long with the great salary, our peace officers earn a retirement package you just can’t find in private industry."

Chinn’s graph also seems drastically out of step with national averages.  Daniel DiSalvo explains:

Generally speaking, the public sector pays more than the private sector for jobs at the low end of the labor market, while the private sector pays more for jobs at the high end. For janitors and secretaries, for instance, the public sector offers an appreciably better deal than the private economy: According to the Bureau of Labor Statistics, the average annual salary for the roughly 330,000 office clerks who work in government was almost $27,000 in 2005, while the 2.7 million in the private sector received an average pay of just under $23,000. Nationwide, among the 108,000 janitors who work in government, the average salary was $23,700; the average salary of the 2 million janitors working in the private sector, meanwhile, was $19,800.

For workers with advanced degrees, however, the public-sector pay scale is likely to be slightly below the private-sector benchmark. Private-sector economists, for instance, earn an average of $99,000 a year, compared to the $69,000 earned by their government colleagues. And accountants in the corporate world earn average annual salaries of $52,000, compared to $48,000 for their public-sector counterparts.

See also this chart from the U.S. Bureau of Labor Statistics’ December 8, 2010 News Release:

Chart_Empl_Costs_thumb[3]

 

Or this chart from the USA Today last August.

In sum, the education level of public employees is indeed a relevant factor in determining the appropriate level of compensation.  Criticisms of public sector unions should take this into account before claiming that public employees are overcompensated.  But in like measure, defenders of the public sector unions should not presume that citing to higher average levels of education is a silver bullet in explaining the average levels of public sector compensation.  In this way, Chinn’s graph is confusing at best and misleading at worst.  Many other factors are critically relevant in determining the proper measure of compensation.  Instead of making blanket claims that all public sector employees are under- or over-compensated, we should resolve to do the hard work of making case-by-case analyses.

[Update: Ezra Klein asks the same question today, and gets the wrong answer.]

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Written by Tim Kowal

February 21, 2011 at 12:28 pm

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