I can say with great confidence that government bureaucrats are overpaid compared to people in the productive sector of the economy.
Why am I sure that this is true, particularly when the so-called Federal Salary Council claims bureaucrats are underpaid?
For the simple reason that the “job opening and labor turnover” data from the Department of Labor is the best way to measure whether a group of workers is overpaid or underpaid.
And you probably won’t be surprised to learn from this data that bureaucrats at the federal, state, and local level are only about 1/3rd as likely to quit their jobs as workers in the private sector.
They’re less likely to leave their jobs, needless to say, because they generally get paid more than they’re worth.
But just in case you think this data is unconvincing, let’s look at some additional research.
Sita Slavov of the American Enterprise Institute explores this topic in an article for U.S. News & World Report.
…studies show that, while the salaries of public sector workers are roughly in line with those paid in the private sector, public sector workers receive substantially more generous fringe benefits, such as pensions, health benefits, vacation and job security. …Why are public sector workers so highly compensated? And, why is their compensation so heavy on benefits? Workers certainly value benefits, such as access to group health insurance, and many benefits are tax advantaged. But do public sector workers really value these benefits more than private sector workers? Edward Glaeser and Giacomo Ponzetto have attempted to address these questions in a recent National Bureau of Economic Research working paper entitled “Shrouded Costs of Government: The Political Economy of State and Local Public Pensions.” The authors present a formal model in which public sector compensation is determined by a political process that pits politicians against each other in a competition for votes. They show that this political process results in a public sector compensation package with generous benefits.
In other words, bureaucrats are over-compensated, and much of their excess compensation is in the form of generous fringe benefits.
The new study cited by Sita looks at why this happens.
Public sector workers have an information advantage over other voters. In particular, they are better informed about their own compensation packages. Moreover, this information advantage is more pronounced for benefits than salary. This is plausible because information about public sector salaries is available to the general public… In contrast, information about public sector pensions is less widely available, and because of complications involved in valuing future pension benefit promises, it is also more difficult to interpret. As a result, politicians propose generous public sector compensation that is tilted towards benefits rather than salary. A politician who tries to scale back public sector benefits will lose support from public sector voters (who are hurt by the benefit cut) without gaining much support from other voters (who gain from lower taxes but are poorly informed).
My interpretation of these findings is that politicians and bureaucrats basically conspire to rip off taxpayers.
In exchange for campaign contributions and other forms of political support, the politicians give the bureaucrats excessive compensation. But they make it difficult for taxpayers to figure out how they’re getting robbed by concentrating a big share of the excess in harder-to-measure fringe benefits.
Another advantage of that approach, by the way, is that the bill for all the retiree benefits doesn’t come due until some point in the future, by which time the politicians who put taxpayers on the hook often have retired or moved on to some other position.
But these promises do translate into real costs sooner or later, as taxpayers have painfully learned in places such as diverse as California and Greece.
Though, to be fair, governments get into fiscal trouble because they also make irresponsible commitments to all workers, including those in the private sector. America’s long-term fiscal crisis, for instance, is because of poorly designed entitlement programs.
Bu this isn’t an excuse to do nothing. It just means we have to reform entitlements and also trim back the excessive compensation for the bureaucracy. This video elaborates.
P.S. If you still aren’t convinced that bureaucrats are overpaid, look at this remarkable map.
P.P.S. You probably won’t be surprised to learn that bureaucrats also don’t work as hard as the rest of us.
P.P.P.S. I’m more concerned about the overall size of government than I am about the pay levels of bureaucrats. I’d much rather focus on shutting down the Department of Housing and Urban Development, for instance, instead of simply trying to reduce the pay of HUD bureaucrats.
Reblogged this on RD Revilo.
Reblogged this on This Got My Attention.
Whether in the public or private sector, “defined benefit’ arrangements are conducted on an IBG/YBG [I’ll be gone and you’ll be gone] basis. In such an atmosphere, it is easy to exaggerate expected growth rates. The fact that such arrangements create a huge drag on future growth is ignored.
To remove the veil covering these shady deals, it is imperative that all future benefit arrangements be conducted on a “defined contribution” basis. In that way the true cost is revealed in the present. Because neither side in the negotiations will be happy with these restrictions, this is one of the few times that regulation will be necessary.
Dan-
I feel there is another facet of this diamond that you did not explore. Since I was a kid, I always knew there were “public sector jobs” available to those who just wanted a secure stable job, did not want to work too hard, got good benefits, but were poorly paid. And I knew a lot of people who went that direction. They were usually the people who did not have any big career aspirations- they just wanted a job to get by. And we did not hold the other two things against them- the fact that they didn’t work very hard, but were provided sterling benefits- becaause they sijmply did not get paid very much. And the common question was “yes, but would you want to work in the dead-end jobs they have?” Shuffling paperwork, and listening to endless public complaints all day? And dealing with the politics and bureaucracy?
Then, one day the tide shifted. They(the public sector) were on a steady diet of low-percentage pay increases based on the cost of living. Not something that should have made them rich. However, the private sector took a whacking during the last 15 years. I can personally say that my income is not much more than it was 15 years ago. Not something to be proud of, but neither is that of my peers. In fact, most of the jobs I look at have the same base salaries and additional compensation packages as they had 15 years ago. And that’s for a guy who graduated magna cum laude with an engineering degree. Meanwhile, the “turtle” in this race- the public sector, has been plodding along at a steady pace of 3-5% increases year after year. So like the tortiuse and the hare, they simply overtook us. I don’t expect that the market will turn before I am no longer employable, but one would hope that someday on the horizon those roles would change back to what they used to be. Otherwise, we are going to be forced to bring the public sector employees to a day of reconning similar to what private sector employees have seen with each new job change.
So, perhaps the correct answer for me is to “retire” to a high-paying public sector job where I can sort of stumble through the rest of my working days, and then retire to a grand pension- one that is not offered by private sector jobs anymore.
[…] you guess which jurisdiction took this important step, notwithstanding the greed, political sophistication, and power of government […]
[…] you guess which jurisdiction took this important step, notwithstanding the greed, political sophistication, and power of government […]
[…] not a good deal for taxpayers, though, and the entire system is rather unstable because politicians and union bosses have conspired to create huge unfunded liabilities that threaten to create a death spiral for state and local […]