I noted below that the White House just released its annual report to Congress including employee job titles and salaries. I pointed out a few examples of offices that might be considered sweet deals for the people who hold them. There was a larger, unstated thought behind my post, though: how public-sector employees are helping to bankrupt states. “The Beholden State,” an excellent piece by Steven Malanga from the Spring 2010 issue of City Journal, details how the Golden State became, well, not so golden.
The unions’ political triumphs have molded a California in which government workers thrive at the expense of a struggling private sector. The state’s public school teachers are the highest-paid in the nation. Its prison guards can easily earn six-figure salaries. State workers routinely retire at 55 with pensions higher than their base pay for most of their working life. Meanwhile, what was once the most prosperous state now suffers from an unemployment rate far steeper than the nation’s and a flood of firms and jobs escaping high taxes and stifling regulations. This toxic combination—high public-sector employee costs and sagging economic fortunes—has produced recurring budget crises in Sacramento and in virtually every municipality in the state.
The story isn’t of interest just to the Californians now footing the bill—if they’re fortunate enough to have jobs. As Malanga notes, public-sector employees are exerting a disproportionate influence on politics around the United States.
How public employees became members of the elite class in a declining California offers a cautionary tale to the rest of the country, where the same process is happening in slower motion. The story starts half a century ago, when California public workers won bargaining rights and quickly learned how to elect their own bosses—that is, sympathetic politicians who would grant them outsize pay and benefits in exchange for their support. Over time, the unions have turned the state’s politics completely in their favor. The result: unaffordable benefits for civil servants; fiscal chaos in Sacramento and in cities and towns across the state; and angry taxpayers finally confronting the unionized masters of California’s unsustainable government.
Those who argue that public-sector employees really aren’t any better paid than their counterparts—such as Office of Management and Budget director Peter Orszag—should read Andrew G. Biggs and Jason Richwine’s piece in yesterday’s Wall Street Journal. They crunch the numbers, controlling for all manner of variables, and find a “stubborn” gap between public- and private-sector wages.
Conducted for the Bureau of Labor Statistics, the CPS is a long-running survey that couples earnings and employment information with detailed demographic characteristics of the survey population. At first glance, the CPS data show that the average hourly wage for a federal worker is about 48% higher than a private worker’s. Yet because federal employees tend to be more educated and experienced than their private counterparts, as Mr. Orszag noted, one has to control for these skill differences. This reduces the public-private salary gap—but it does not eliminate it. The federal wage premium for workers who have the same education and experience stands at 24%, still a windfall for public employees.
Even using all the standard controls—including race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more—the federal wage premium does not disappear. It stubbornly hovers around 12%, meaning private employees must work 13½ months to earn what comparable federal workers make in 12.
That’s just the difference in wages. As Biggs and Richwine note, benefits such as healthcare and pensions tend to be at a higher level for public employees, too. And in this recession, perhaps there’s no putting a price on the increased job security that comes with a government gig. In fact, as unemployment rates across the country remain high, President Obama wants to spend $50 billion bailing out some public employees who might lose their jobs because the states that pay their salaries are bankrupt.
In today’s Wall Street Journal, Stephen Moore examines the pay and benefits of a specific group of public-sector employees: Wisconsin public-school teachers. Obama wants $23 billion to save teachers’ jobs, but Moore believes the promise of a bailout is just what led to the so-called need for one.
The average pay for a Milwaukee school teacher is $56,000, which is hardly excessive. Benefits are another matter. According to a new study by the MacIver Institute, a state think tank, the cost of health and pension benefits now exceeds $40,000 a year per teacher—bringing total compensation to $100,500.
The current health plan costs taxpayers $26,844 per family, compared to the typical $14,500 cost for a private employer family plan.
The Milkwaukee school board offered to avoid layoffs if it could spend less on healthcare by requiring co-pays of its employees—a healthcare cost with which virtually everyone in the private sector is familiar. But the union refused. Moore asks, Why did the union prefer to let hundreds of its members get laid off instead of accepting a compromise?
The Milwaukee Teachers Education Association was immovable on benefits in part because it placed a bet on its Democratic friends in Washington rushing to the rescue. “The problem must be addressed with a national solution, a federal stimulus package that will restore educator positions,” Pat Omar, the union’s executive director said in June. The union’s strategy in recent weeks has been to stage rallies demanding a federal bailout, and it used hundreds of school kids at those rallies as political props.
As with many things, what started in California is moving inextricably eastward.