Lots of people have been tossing back data comparing public and private sector workers in a effort to determine if government workers are “overpaid.”
Here are two questions:
- Raise your hand if you think government import policy can over turn the law of comparative advantage.
- Raise your hand if you think the GS salary scale can over turn supply and demand in the market for labor.
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Monday ~ January 30th, 2012 at 10:20 pm
Kenneth Hunter
You have a point. We can also consider the impact of current government compensation (at the Federal level) on competing for talent in conditions that tend to make potential workers more risk-averse.
Under normal or positive economic conditions, I would agree with your argument. However, when considering the current situation and the lack of faith that certain segments of the labor force have with respect to their earning potential (not to mention desire for job security), higher-than-average wages in a sector perceived as “secure” would naturally draw talent away from the more-volatile private sector.
Can’t we also agree that if a talented individual existed and he/she had a choice between private and public sector employment, it is likely that the long-term benefit of their work would be greater (personally and for society) if they chose the private sector option.
Regardless of how talented or productive a public sector employee is, speaking as one, it is incredibly rare that we have those who “pay for themselves.” Public sector employment is a net consumer in the economy of a considerable degree, and so it takes the output of many times more in the private sector (especially the talented) to provide for us.
Monday ~ January 30th, 2012 at 10:36 pm
david
What’s the excess supply of labour for public-sector jobs? Is it appreciably more than the excess supply of labour for comparable private-sector jobs?
(where the jobs are not comparable – demand for judges, say – the wage comparison is moot anyway)
Monday ~ January 30th, 2012 at 10:48 pm
The Million Dollar Mailman « Modeled Behavior
[...] a new CBO study that argues federal workers are overpaid relative to private sector workers, Karl presents two questions I believe meant to imply that the government cannot overpay for workers. I would answer [...]
Monday ~ January 30th, 2012 at 11:21 pm
Michael Dekker
I’ll bite.
Fixed-price markets fail to clear on the supply side when the price is too low. When the price is too high, the market clears just fine.
Tuesday ~ January 31st, 2012 at 12:32 am
david
No, second-best adjustment just shifts the deadweight loss around. When the price is too high, it is indeed the case that excess suppliers won’t actually just hang around fruitlessly and so the individual market remains efficient. But there is still an effective tax and the distortion shows up in the other markets, of stuff which consumers could have bought but couldn’t, and of stuff which the lucky suppliers couldn’t have bought but could. With luck elasticities might point in a direction that minimizes the inefficiency but we don’t know that.
Tuesday ~ January 31st, 2012 at 4:03 am
Michael Dekker
I’ll try to be less brief. And I should know better than to post late.
I don’t see the connection between 1 and 2.
Of course import tariffs reduce consumption, either of the taxed good or of other goods, or both. And American firms that must purchase foreign goods (or labor) at artificially higher prices are then less competitive on global markets because of their higher costs.
A business that insists on voluntarily overpaying for goods (or labor) will soon become unprofitable, assuming efficient competition. So overpaying for labor is not a equilibrium condition, unless the employer has no competition. So, yes, because the government’s cost structure is not disciplined by the market, it is capable of chronically overpaying for labor.
As to whether the government underpays for certain categories of labor, I consider this unlikely. As mentioned by others, the CBO analysis presumably did not include job security (discounted present value of future income stream) in their analysis.
Tuesday ~ January 31st, 2012 at 10:16 am
Ben
1) Some government workers do “pay for themselves.” IRS agents or overseas visa adjudicators, for example. Trade negotiators probably do as well. By pay for oneself, I’ll define it a government worker’s contribution to GDP exceeding his/her total salary plus compensation. This very narrow definition ignores contributions to national security and other positive externalities.
2) Job security is less guaranteed than one would think. For example, how much job security do Postal Service employees have right now?
Tuesday ~ January 31st, 2012 at 10:51 pm
Unlearningecon
*Raises both hands*
Laws in economics…honestly.
Thursday ~ February 2nd, 2012 at 11:26 am
reason
“Can’t we also agree that if a talented individual existed and he/she had a choice between private and public sector employment, it is likely that the long-term benefit of their work would be greater (personally and for society) if they chose the private sector option.”
No.
Thursday ~ February 2nd, 2012 at 11:27 am
reason
And I’m saying that as someone currently working in the private sector, but who has worked in the past in the public sector.
Monday ~ February 6th, 2012 at 8:33 am
Notes From the Underground « Modeled Behavior
[...] a new CBO study that argues federal workers are overpaid relative to private sector workers, Karl presents two questions I believe meant to imply that the government cannot overpay for [...]
Monday ~ February 27th, 2012 at 6:43 pm
Jon
The bottom line is yes. While not all government jobs are overpaid, a large portion are. Comparing private and government jobs are not a 1:1 ratio. Compensation packages/benefits, days off, medical coverage, liability (or lack there of), productivity, phone allowance, retirement (alloted time to qualify for retirement), etc. by government jobs are not comparable to that of most private jobs.
How many private employers will pay there employee “administrative leave”, while they are accused of a crime? How many employers will buy out the remainder of their employee’s contract (at full face value) should “they” decide to leave (which is ludicrous)?