Ideology and the Public Sector
Recently we have seen more than the usual amount of intensity in debate about the pay, benefits, and status of public employees. There is the governor of Wisconsin's union-busting, of course, which was delayed but not prevented by Tahrir Square-style protests at the state capitol and by Democratic legislators evacuating to an undisclosed location. And this week in Washington there was a House hearing on federal pay at which, according to the Washington Post's write-up, all that was needed to be complete was “an announcer with a booming voice asking the packed room, 'Are you ready to rumble?' "
Welcome to ideology in action. The ideology involved in these debates tends to be from one side. Public sector employees are—curl up the face—bureaucrats. They are not subject to good old free enterprise competition. They live off our—curl the face again—taxes. There is not a countervailing pro-bureaucrat sentiment, but instead only non-ideological considerations about effectiveness and fairness in retaining a workforce to perform the public's business. So any flailing away at the bureaucrats or their remuneration has a ready audience. The sort of flailing seen at this week's hearing, devoted to the proposition that federal employees are overpaid, usually relies on spurious public/private comparisons that do not take into account different job categories and the different skill levels associated with them.
Against this backdrop, a recent study by Jan Brueckner and David Neumark, two economists at the University of California at Irvine, is interesting. The study speaks to an issue raised in the union-busting in Wisconsin: to what extent public sector employees, because of a presumed organizational, free-of-competition advantage, are able to extract more generous compensation from the taxpayers than their jobs and skills would warrant. The extra twist that Brueckner and Neumark investigated was their hypothesis that this presumed extractive advantage is tempered by the ability of disgruntled taxpayers to vote with their feet by moving to other jurisdictions. Specifically, the economists suggested that states where taxpayers would be more inclined to do just that would show less of a wage advantage for public sector employees than would states that, because they are attractive places to live in other respects, have citizens who are less inclined to move away despite any annoyance they may feel over high taxes and overpaid public employees. The researchers equated attractiveness in this respect with states that are close to the ocean, have mild climates, and/or have the excitement of big cities.
The hypothesis was supported, using data that calculated for each state the “wage differential” for state and local employees that was a measure of how much their pay might exceed what would be expected according to all other relevant factors such as job category and educational level. New York, Florida, Rhode Island, Nevada, and California were some of the states in which the public employees enjoyed such a differential. But a further result was that these states were in a minority. In about three-fourths of the states, the wages of public sector employees according to this measure lagged behind those of their counterparts in the private sector. So much for overpaid bureaucrats, as far as the nation as a whole is concerned.
This result really should not be surprising, given all of the other noncompetitive influences that, as Brueckner and Neumark note, also influence pay. In the private sector, such noncompetitive influences abound especially at the upper levels, where compensation is determined by self-perpetuating and mutual back-scratching corporate “governance” arrangements. And then there are the non-monetary factors that affect not only where people want to live but also where they want to work. The more forward-looking companies in the private sector—think of some of the niftier places to work in Silicon Valley—offer very significant attractions that have nothing to do with the size of the paycheck. By contrast, some of the working conditions in the public sector are stifling and aggravating—such as ethics rules that tend to be much more restrictive than in the private sector. I think about this when someone hosts me for a lunchtime business meeting and I need to remind myself that, because I no longer work for the federal government, I don't have to worry about making sure that my lunch doesn't cost any more than $20.
Factor in these other working conditions and, together with the negative wage differentials, the compensation of most public employees lags even farther behind that of their private sector counterparts. Thank goodness many people are motivated by still another non-monetary factor, which is called a sense of public service.