A story in the Times today covers the ongoing attempts by politicians to decrease the pay and power of unions:
State officials from both parties are wrestling with ways to curb the salaries and pensions of government employees, which typically make up a significant percentage of state budgets….
But in some cases — mostly in states with Republican governors and Republican statehouse majorities — officials are seeking more far-reaching, structural changes that would weaken the bargaining power and political influence of unions, including private sector ones.
And yesterday, at the Economix blog, Times reporter Michael Powell had some more comments on a previous article he’d written about public sector pay, where he made this claim:
A raft of recent studies found that public salaries, even with benefits included, are equivalent to or lag slightly behind those of private sector workers.
An important note about these public sector studies is that I don’t believe that any of their authors are claiming that there is no public sector union wage premium. Just like in the private sector, being in a union raises your wages by over 10%.
Of course some of these studies explicitly control for union membership, which then tells you that public sector workers aren’t overpaid once you take their union premium into account. Not all studies control for unionization, which is an attempt to provide a measure of the overall wage premium for public sector workers, but I doubt that those authors would deny that there is still a public sector union wage premium.
So are public sector workers overpaid? It’s a tough question to answer because there are many perks for occupations, and also probably some selection bias. But I think we can say with a fair degree of certainty that , just like in the private sector, those in unions receive a substantial wage premium above market rates.
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Tuesday ~ January 4th, 2011 at 10:47 am
sardonic_sob
The question then becomes whether it is reasonable to argue that the union wage premium accounts for public sector pay disparities when many public sector union employees are in the types of positions which are not, never have been, and never will be unionized in the private sector.
In other words, if they are not paid more because they are public employees, but because they are public employees they have a privilege which causes them to be paid more, is that a distinction with a difference?
Would you argue to someone who feels that it’s inequitable for public sector employees to be paid more that the solution is a dramatically increased union presence in the private sector? Would that improve the economy? Would it be a public good?
In my opinion, *why* they are paid more is completely irrelevant. The base question is, “Are [government employees] paid more than [private sector employees doing comparable tasks?]” and the answer seems to be, “Yes at lower levels – which is most of them – and no at higher levels.” The next question is not “Why?” but, “From a public policy standpoint, is this a good thing, a bad thing, or an irrelevant thing?”
Tuesday ~ January 4th, 2011 at 1:57 pm
Corey Mutter
Well, if public employees were actually overpaid, then you’d see people with other options running to public jobs for the money. People do follow incentives, right?
Where are all the people saying “Screw working at Cisco, I’m gonna go get one of those DMV jobs”?
Tuesday ~ January 4th, 2011 at 1:59 pm
Adam Ozimek
What you would and do see is an enormous amount of queuing for these jobs http://modeledbehavior.com/2010/11/17/are-government-workers-overpaid/
Tuesday ~ January 4th, 2011 at 2:14 pm
Corey Mutter
Good point. The nonprofessional jobs do get a lot of queuing. I saw that growing up with people trying to get on board with the USPS and such.
In contrast I think the professional jobs are usually underpaid. The examples I tend to see are people complaining about $100K school superintendent salaries, where a CEO of a similarly-sized corporation would spend more than that annually on shoe maintenance.
Tuesday ~ January 4th, 2011 at 3:34 pm
sardonic_sob
Mr. Mutter: (Again, comment reply feature on this blog, sucks rocks it does.)
That’s an excellent point, but I would offer two rebuttals:
1) Even Ben and Jerry’s found that to get a world-class corporate manager, they had to break their ratio-of-pay rule in the end. This rule, however, is sacrosanct in public education, especially since the vast majority of school superintendents are former teachers. If you tried to pay administrators at schools at the same pay ratio that they are paid in the private sector, you’d have open revolt.
2) While obviously the exceptions are many and glaring (why does Vikram Pandit make more than the GNP of some countries again?) by and large you have accountability commensurate with those large salaries, and authority likewise. This is not so in public education nor is it likely to become so. How many current school superintendents would accept having their pay quintupled but in exchange being told, “If your [profits/test scores/whatever metric] shows you are not maximizing [shareholder value/taxpayer money/whatever input,] and providing a positive and increasing trend in the next six quarters, you’re gone?”
Wednesday ~ January 5th, 2011 at 5:22 pm
govt_mule
sardonic-bob
Your question in rebuttal #2 needs to be amended to be fair:
“How many current school superintendents would accept having their pay quintupled [and being guaranteed a severance package/golden parachute that most people could retire on immediately]…”
Thursday ~ January 6th, 2011 at 5:26 pm
govt_mule
Adam:
Do you have any evidence of significant, sustained queues of qualified applicants for govt jobs other than a single bizarre case from 2004?
In my govt post 70% of new hires over the past 10 years have been foreign-born scientists – very few natives seem to want to work for federal salaries. We have seen a huge increase in applications since the economy tanked, but a lot of these are from desperate people who are at best marginally qualified for the positions they are applying for.
Tuesday ~ January 4th, 2011 at 3:02 pm
David Burton
We are again looking at the results of “conservative” politics. Unions were bought off by padding retirement benefits because they don’t have to be accounted for in current budgets directly. Instead they get to add money to retirement trust funds where budgetary hocus-pocus makes for assumptions like the 8% return on investments.
When the time comes to balance the budget law makers will borrow money from one fund and place the repayment in the next fiscal year and all the other tricks so that they can keep their no-new-taxes pledges. Now that they have reached the end of their rope, lawmakers are “furious” at the “fat cat” public employees who are now owed all this money.
They neglect to mention that most of these employees are Police, Firemen and teachers because all the non-specialized jobs like print shops, janitors and garbage collectors were outsourced during the Reagan revolution – good luck throwing all those “bums” out.
Tuesday ~ January 4th, 2011 at 3:36 pm
sardonic_sob
The only part of what you said that sounds “conservative” is the outsourcing thing, and that directly reduced the problem by reducing the number of employees potentially qualifying to get the benefits. Otherwise it doesn’t sound like conservative politics or liberal politics, it just sounds like politics.
Tuesday ~ January 4th, 2011 at 6:20 pm
geaugailluminati
why assume anyone is overpaid? could it not be that many are underpaid?
The Pew Research Center for the People & the Press released their year-end survey on December 15, 2010
let me repeat the information as a series of bullet points.
•Affording basic necessities remains a struggle.
•51% say it is difficult to afford health care.
•48% say the same about their home heating and electric bills.
•29% say it is difficult to afford food.
http://www.declineoftheempire.com/2011/01/29-of-americans-say-its-difficult-to-afford-food.html
Wednesday ~ January 5th, 2011 at 10:34 am
Sardonic_sob
While at first glance it would seem logical that someone who doesn’t make enough money to afford necessities is by definition underpaid, I offer two comments.
1) Saying you can’t afford these things seems just as likely (more, IME) to be an admission that you aren’t prudent with money as evidence that you don’t have enough of it.
2) it may be that there are people whose contribution to society doesn’t *justify* their being paid any more. Whether we should let them starve is an entirely separate question, but if you are arguing that poor people are poor because they aren’t paid enough for their work, the obvious explanation is that their work isn’t worth any more than that.
Wednesday ~ January 5th, 2011 at 7:18 pm
Chris Wegener
What is wrong with a 10% Unionization wage benefit? No one here seems to have trouble with the idea of people organizing as corporations and then sucking their customers dry while paying the leadership astronomical salaries (without, I might add, being fired when not performing to any reasonable metric. (but I digress))
Why is it wrong for labor to do the same thing despite the thirty years of demonization and legal union busting to try and destroy the American Labor movement?
Wednesday ~ January 5th, 2011 at 7:45 pm
Adam Ozimek
Businesses are preventing from forming cartels and engaging in anti-competitive behavior by anti-trust authorities, labor is not. Imagine if every clothing store in a state got together and set a price that they were willing to charge for bread, and nobody else was allowed to sell bread to customers at a lower price. They would be forbidden. Yet statewide labor organizations are able to do this with their prices, e.g. wages. Not only is there a failure of anti-trust to target this behavior, but arbitration rules are in place in some states that make it far easier for labor to cartelize and prevent competition than a simply free labor market would.
Thursday ~ January 6th, 2011 at 4:07 pm
govt_mule
A silly hypothetical. I suppose that if all the union bakery workers in PA went on strike demanding the same pay and benefits in every community, that would be comparable to your example. But that never happens. Individual locals negotiate contracts with individual cities, school districts or manufacturers for firefighters, teachers, and laborers.
But let’s accept your notion that unions have a huge advantage over businesses in being allowed to form cartels and engage in other “anti-competitive” behaviors. The fact that union membership and power have continuously declined proves that such advantages are no match for the power of businesses.
Apparently even greater advantages are needed for unions in order to maintain a level playing field between workers and employers and have fair negotiations.
Friday ~ January 7th, 2011 at 8:15 am
Adam Ozimek
Govt_mule
The geography of the union is irrelevant if they have a monopoly, which is the case for public sector unions in many states.
With respect to the private sector, you are correct that the decline of unionization is evidence of the limited power of unions. If they are raising wages for firms too high in one location, then other non-unionized firms will tend to put them out of business. This is an important check on union power in the private sector.
Unfortunately, in the public sector when wages are too high there is no competitor to put the government out of business, and so that check on union power does not exist. This is exactly why public sector unionization has not declined while private sector has.
I think many union critics would agree that this is why public sector unions are a much larger problem than private sector unions.
Friday ~ January 7th, 2011 at 12:44 pm
govt_mule
There is no monopoly in the sense that unions control the supply of labor. Any entity (public or private) that signs a union contract gives the union monopoly power on labor for the term of the contract, just as the union gives monopoly power on jobs to the entity. But at the end of the contract a school board can choose to hire non-union teachers and a businesses can hire non-union carpenters. As long as there are non-union teachers (and there are plenty of them working in private schools) available, public schools have the option to hire them rather than union teachers, and no monopoly exists. Same goes for cops and other public employees.
“in the public sector … there is no competitor to put the government out of business”. There is no need for a “competitor” to provide a choice between union and non-union labor, simply a supply of people willing to work for the government without being in a union.
I suggest that public sector unions are more prevalent because those hiring public sector employees have different goals than those hiring private sector employees; one group seeks to optimize economic benefits for all, while the other group seeks to optimize economic benefits for a few.
Friday ~ January 7th, 2011 at 1:10 pm
sardonic_sob
No offense, but that’s stupid.
Well, I guess it’s hard not to offend saying that a stupid thing is stupid, but nevertheless.
What would optimize economic benefits for all would be for those who are paid with public monies to work as cheaply as possible so that more money remains in the productive sector and increases the size of the overall economy. And in any case, it most definitely does not optimize economic benefits for *all* for public sector employees to be paid more than the public is willing to pay them via tax transfer. As we can see, the eventual outcome is extremely non-optimal, in the sense that a nine-hundred-pound chicken coming home to roost on your head is “non-optimal.”
Saturday ~ January 8th, 2011 at 12:28 am
Adam Ozimek
The practical ability to not renew contracts is limited especially since many public sector workers can strike and literally shut down cities. Also many states have mandatory arbitration laws so that a contract need not be agreed upon, but rather a lack of an agreement can mean an “independent” arbitrator sets the contract. In practice this often strongly favors unions.
It’s precisely because the public sector is supposed to serve all of our interests and provide public goods that it is damaging when one group is able use it in order to serve their narrow interests. This is what public sector unions do.
Also, some states have laws which require collective bargaining, which means labor cartelization is often inevitable and local governments often cannot choose to hire non-union workers.
Sunday ~ January 9th, 2011 at 5:22 pm
govt_mule
The ability to strike and shut down the employer is the whole point of the union, isn’t it? How else can workers gain parity with employers in setting wages and benefits? In PA, teachers can only strike for a limited time before binding arbitration is required, in order to ensure that the school year can be completed. This limits the ability of the teachers to exert pressure on the school board and reduces their negotiating power. If there is bias in the teacher’s favor in arbitration, it merely offsets that loss in negotiating power.
Clearly there is balance between the narrow interest of public workers to maximize their income, and the narrow interest of taxpayers to minimize their taxes. Neither of these is nobler than the other. Taxpayers have the right to elect officials who will change the laws and negotiate in their interest, and public workers have the right to organize and negotiate in their interest.
We could try reducing the wages and benefits of all public employees to some low level, and see where that puts us in 10 or 20 years. Or we could look at Mexico and other developing nations. Your taxes will certainly be low, but if you want services, police protection, etc. comparable to what we have now, be prepared to pay bribes, contract with private security and generally deal with corruption and ineptitude at every level.
I think the long-term public interest is best served by having a substantial workforce that has secure benefits, a decent, stable income, and the ability to pay taxes, invest, and make purchases that fuel the economy. It is also served by focusing on the reasons why most Americans don’t have secure jobs, reliable benefits, and decent wages, rather than on the few who do.
Friday ~ January 7th, 2011 at 6:52 pm
govt_mule
Call ‘em as you see ‘em, bob. I think and say stupid things at times, and the sooner I get called on them the better.
Which statements are stupid? that public unions are not monopolies? that public employers have different goals than private employers? that one group optimizes for all?
What is the productive sector? Are you saying that building and maintaining apartments is productive, but building and maintaining roads is not? Research at Merke is productive, but research at the CDC is not? Are you saying that the economy doesn’t grow when more teachers, soldiers, etc. earn paychecks, buy cars and homes, and invest their savings?
Friday ~ January 7th, 2011 at 10:16 pm
sardonic_sob
“public sector unions are more prevalent because those hiring public sector employees have different goals than those hiring private sector employees; one group seeks to optimize economic benefits for all, while the other group seeks to optimize economic benefits for a few.”
That’s the stupid part.
Saturday ~ January 8th, 2011 at 1:52 pm
sardonic_sob
If I had to pick the single most important reason public sector unions are more prevalent, it’s that laws that favor private unions are opposed by employers, a specific and active counter-party who have things that politicians want, whereas public unions are opposed only vaguely by no specific counter-party (until recently, anyway.) Given that other than wages a lot of the things unions were originally used to get in the private sector (safe working conditions, reasonable working hours/overtime, etc) are now ensconced in law, the impetus for them is lower and the impetus against them is higher there.
Sunday ~ January 9th, 2011 at 5:32 pm
govt_mule
Agreed, though I would say the demise of American heavy industry had about as much influence as the codification of early union goals.
Sunday ~ January 9th, 2011 at 7:29 pm
Adam Ozimek
Gov’t Mule,
You said:
“There is no need for a “competitor” to provide a choice between union and non-union labor, simply a supply of people willing to work for the government without being in a union.”
And I gave you several reasons why that wasn’t true in practice, but now you seem to be retreating to the claim that there’s nothing wrong with union employees having an effective monopoly on labor supply. I’ll take this to mean that you are backing off your claims about unions monopolizing labor supply.
I think our disagreements, aside from factual ones, largely originate from your statement that you are indifferent between the welfare of one interest group, public sector workers, and everyone who the public sector serves…. which is everyone. I believe the public sector exists to serve the public, and given that they produce important goods, I think it’s actually very important that it works well. And so I’m not indifferent when an interest group is able to extract rents from, and render inefficient, the public sector. You, apparently, are.
Monday ~ January 10th, 2011 at 10:04 am
govt_mule
You misunderstand me – I do not believe that public unions have a monopoly on the labor supply. I agree that in practice it is difficult for a newly-elected mayor to lock out the union and replace all his cops or teachers with non-union labor, primarily because there just aren’t 1000′s of trained and certified cops/teachers/subway drivers standing around ready to go to work, and you can’t outsource their jobs to Mexico. But difficulty replacing public workers does mean unions hold a monopoly any more than difficulty buying gas for $2/gal means there is a monopoly on petroleum. A determined mayor with public support can refuse to sign an exclusive union contract and gradually train and bring in non-union employees. Or contract out to a private firm.
I’m not backing off on the view that there is no monopoly, but extending that view to state that even if public unions were monopolies or quasi-monopolies, I have no problem with the current level of compensation that I and other govt employees receive. I’ll sing a different tune when I start seeing Escalades in the municipal parking lot or private sector executives courting public officials for govt jobs rather than vice-versa.
I think the long-term public interest is best served by having a dedicated, competent workforce compensated sufficiently and fairly enough to avoid corruption and favoritism. I don’t think we’ll get that if we ask public employees to take a vow of poverty or treat their labor (implicitly or explicitly) as less valuable than that of workers in the private sector.