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  • Why the Issue of Overpaid Government Workers Matters

    Government workers probably aren’t overpaid, and even if they are, we shouldn’t care. This is Paul Krugman’s message in a recent blog post that takes on the critics of government pay. He is wrong on both counts.

    The Heritage Foundation has written extensively about public-private pay disparities, and we have found consistent evidence that government workers are overpaid, even after controlling for skill differences between the private and public sectors. Federal workers receive both wages and benefits above market levels. State and local workers receive sub-market wages, but they make up for it (and then some) with excessive benefits.

    Krugman focuses on state and local workers, whose compensation is a bit tricky to compare to private workers. Some analysts calculate total state and local benefits using yearly government contributions to retirement and health funds. However, some states are currently underfunding the pension plans. In other words, what state and local governments pay for these benefits may greatly understate what their employees must eventually receive.

    Krugman writes: “The fact that state and local governments haven’t been making large enough contributions to pension funds says nothing, one way or the other, about whether workers are overcompensated.” But of course it does. It means that the way we calculate state and local employee compensation—i.e., including only the funded portion of their benefits—grossly underestimates their actual compensation. Consider the full value of promised benefits, and the public sector suddenly looks well compensated indeed.

    This pension shortfall could be $3 trillion or more, but Krugman says this is no big deal: “A ‘trillion dollar liability’ needs to be placed in context: state and local governments spend $2.8 trillion per year.” It still sounds like a lot to me, since $3 trillion could cover all police, fire, court, and prison services at the state and local level for the next 10 years.

    But cutting public-sector pay is important for another reason as well. Government officials at the federal, state, and local levels are facing difficult and painful decisions about spending cuts and tax hikes. Getting excessive government pay under control is an excellent means of reestablishing fiscal credibility with economic forecasters, business owners, and—most importantly—voters. It will give long-term budgetary reform a fighting chance of passing.

    In an upcoming article for the September issue of The American Spectator, Andrew Biggs and I go into more detail about the importance of the government pay issue. In particular, we cite an IMF study that evaluated when attempts to balance budgets in the industrialized world are ultimately successful. One of the best predictors of success was cutting the government wage bill. Congress should take this lesson to heart.

    Posted in Economics [slideshow_deploy]

    11 Responses to Why the Issue of Overpaid Government Workers Matters

    1. Billie says:

      Nice article!

      If government employees were truly servants of the people, their pay wouldn’t EVER EXCEED THE PRIVATE SECTOR! And if the authority of the government had any integrity and respect to the people, government wouldn’t bribe with high wages that comes from the unknowing private sector. Government competing with the private sector is totally oxy moronic.

    2. Charlie Tips, Texas says:

      When my political consciousness was dawning around the time of the Kennedy-Nixon campaigning, just over five percent of Americans worked for the non-military government at any level. That is, one person in nineteen worked for city, county, state or federal government.

      That ratio has now climbed to twenty percent, or one in five.

      The ability to pay salary and benefits (and taxes) for government workers depends entirely on collecting taxes from workers in the private sector. In 1960, it was understood that govt workers made less in return for high job security. It took the taxes (of all types) of two of the nineteen to pay for the one govt worker. The taxes of the other sixteen could go towards aircraft carriers and submarines, city halls and schools, roads and bridges.

      Now, public workers make much more in salaries and benefits than than those in the private sector. It takes the taxes of three to pay for the one govt worker. That leaves one taxpayer to pay for anything else we care to have. Well, one taxpayer and lots of debt!

      Our long-term survival crucially depends on drving public employment back down toward 1960 levels, while getting much better performance for our money.

    3. Rick, Washington, DC says:

      "….Many feds in the government will argue that their expertise in their field or that their sjob is specialized, justifies their high pay. Well many of the specialized jobs have no competitive check. They are being done only in government with a defined importance given by government. We can never know, based on educational needs of the job or ease of the job, or the desire of others to have the job whether that job is being paid too high or even too little…"

      Mr. Colgrove,

      To quote a line by Pompey in "Rome"–you touch it with a needle. As a confessed Fed, I confirm your analysis. Rampant over-credentialing to no particular public purpose, other than pay inflation.


    4. George Colgrove VA says:

      Many feds in the government will argue that their expertise in their field or that their sjob is specialized, justifies their high pay. Well many of the specialized jobs have no competitive check. They are being done only in government with a defined importance given by government. We can never know, based on educational needs of the job or ease of the job, or the desire of others to have the job whether that job is being paid too high or even too little. Some of these jobs have been done exclusively or mostly by contractors, but this is not the same thing as the job being done in the private sector. Regardless of whether the federal job is being done by a fed or by a contractor, it is being done exclusively at the pleasure of government. Pay rates generally are defined by the federal pay scale. Sure, the actual worker will end up going home with less pay as a contractor than as a fed, but include overhead costs, the fee charged by the contractor for that job will essentially be the same as the federal rate plus benefits. Now there are intelligence positions that need to be done by government employees. Currently some of this work is being done by contractors or civilian feds at a premium. To reduce government spending. these jobs could be shifted to military field soldiers at a fraction of the cost likely improvements in productivity.
      The jobs that need to be looked at for cost cutting are service oriented jobs. Any federal job that directly relates to a “customer” should be done in the private sector by private employees. Getting permits for buildings, bridges, environmental concerns, everything the government issues permits for should be done as a private sector service, direct to the customer. Granting licenses, passports or any other such document should be done by a private sector service business. Obtaining public information or freedom of information requests should be done in private sector businesses. The job hiring process for the government should be done in the private sector. These jobs should not be contracted jobs with the government, but rather direct to the customer (you and I) by private employees in private companies. They should follow the same laws as feds do in completing the tasks, but with competition, we will get a far better idea of what these jobs are really worth – since they will be paid for by the end user. Putting these jobs in the private sector will also benefit from the creativity the private sector has in problem solving. Permits will not simply be denied for example, the company will provide additional engineering or other services that will aid the end user in successfully and lawfully obtaining the permit. The minimal cost to the developer in these cases will be far less than the huge cost of litigation with a government body. Private sector solutions also benefit from the fact it would hurt them by building up backlog. These operations will be efficient for self-preservation rather than being inefficient which aids self-preservation in the public sector.
      All work that have definitive ends (i.e. social programs to end poverty) should be reverted to the private sector faith based groups or other volunteer organizations. It is to the advantage of a volunteer group to limit time to solve issues, whereas for the government worker it is to their benefit to make the work last as long as they can. What government program terminated because it finally solved the problem it was created to solve?
      Work on creating solutions to privatize social security, Medicaid and Medicare. Not by creating new businesses or agencies with government oversight, but rather fold them into existing financial vehicles and insurance programs already available to the customers. If the “virtual” principal of a person’s social security “investment” was rolled over to a retirement program selected by the customer, the government would use the savings of shutting down HSS and collections of those taxes to “pay back” the retirement investment firms.
      There is no reason why any federal job should be specialized to justify higher wages. Other than military soldiers fighting wars, gathering intel or otherwise defending this nation, there should not be any federal employee doing any job that is not well defined by the private sector. Managers, secretaries, clerks, etc. Put the specialized tasks in the private sector where competition and creativity can apply a check and balance on the duty.

    5. Gary, Georgia USA says:

      Government employees face less exposure to economic fluctuations than most provate workers – in other words, they face less financial risk associated with their job. In the marketplace, the assumption of more risk requires a greater return and less risk a lower return. Logically, it follows that government employees would sacrifice some pay for their reduced risk exposure.

    6. Pingback: The importance of the government pay issue

    7. Otto, New Orleans, L says:

      My brother has worked as a Federal government contractor in a high-tech field for 30 years. He hates his pointless, paper-pushing job, but he gets paid so much, that he can't find a private-sector job with a salary even close. He would be a valuable worker in private industry, and he would be much happier doing a meaningful job, but he seems to be golden-handcuffed by the Feds.

    8. Kelly, Pennsylvania says:

      Having worked for both the private and government sectors, I can attest to the truth of this article. Many of those "highly specialized jobs" that government workers believe deserve exorbatent pay are nothing more than glorified supervisors. The quality of work I observed in every level of the government agency I worked for was pathetic. Private citizens not only pay for these absurdly over the top salaries and benefits (which believe me-was fantastic when I worked there) but for 2-3 hour lunches, 30 smoke breaks a day, poor at best services, incompetent people and hoards of nepotism. This is not to say that every government worker is that way, there are many highly skilled, excellent people, but I chose to leave for less pay due to the red tape, bureacratic bs that prevented the people we served from getting proper services (not counting those that the government just threw money at-you know-the ones who never pay taxes anyway). I agree that the amount of gov workers should be reduced (there are so many agencies that do the same thing-and ineptly at that) and salaries should be leveled off to normal market rates. Implement term limits and eliminate all the "extras" (free cars, first class plane tickets, etc). Cut the fat!

    9. DReed; Alexandria, V says:

      I agree with the author. However, as a Federal employee for more than 36 years – more than 25 at the Departmental level – I can state with assurance that I have never seen an entire class of federal employees that were overpaid. (Class being a job series or grade level.) Some individuals are, yes. They don't earn their pay. But are all budget analysts overpaid? All physicists? All auditors? No. Absolutely not.

      The comparison cannot be totality versus totality. The federal workforce is extremely well-educated and credentialed. The US workforce as a whole is not as well educated or credentialed, and those things make a sizable difference. To ignore that is to ignore reality – or to falsely create the headline you wanted to create.

    10. Billie says:

      DReed, with all due respect and no offense, can you state with assurance how you would know what overpay is in any class of federal employees when government pay isn't made but derived from the private sector?

    11. Tim says:

      This is a late add to this post, but thought I would through out a few thoughts.

      1. It is disingenuous to lump all workers together. Having worked extensively in the private sector before coming to the Federal government I see two separate payroll issues
      – Many lower end white collar and/or blue collar jobs are overpaid compared to what the private sector will bear. The secretary (I'm sorry, administrative assistant, they don't like being called "secretaries") will make about $56k this year. Far more than most admins in private sector except perhaps some executive assistants. I know our firm never paid admin staff like that.

      – Professional staff are a generally speaking at or below par with private sector jobs. I left the engineering consulting job I had for a government position taking a 35% pay cut. I'm not complaining, I left a stressful job that demanded 80+ hours per week plus my commute, knowing full well that I would take said pay cut. For me it was worth not having a second ex-wife, and the chance to watch my kids grow up. I'll also say that having great private sector experience let me make up a significant portion of that difference (a touch over half) by being mobile, and by putting my experience to work for me. Most of my coworkers just didn't have the technical depth I did, which made me a commodity. Fact of the matter is, I don't know how the government keeps as many professionals as they do, being the wages are so much less.

      A recent CBO study addresses this and concludes much the same.

      The other issue I see is the "equal pay for equal work" mentality that the government has. There is a reason that engineers, lawyers, physicists, doctors, etc. make good money. It's hard to get the education that qualifies you. We have "historians" in an office down the hall that make what I do. Great for them, but looking at this as a taxpayer, what the heck! There is a reason historians with a BA in the private sector either don't make much, or work in another field that does.

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