The Corner

Government vs. Private Employee Compensations

Are public workers “overpaid, underpaid or just right?” The Atlantic’s Megan McArdle explains the question:

I don’t think of state employment as a way to create, in miniature, my ideal labor utopia. I think of it as a way to procure services. I define people as being “overpaid” not if they are paid more than someone with a similar level of education, but if they are paid more than I need to entice to pay to attract adequate workers. To analyze that, looking at medians is probably somewhat more instructive than looking at means.

Of course I agree with Manzi that this still doesn’t really tell us whether state workers are overpaid, underpaid, or just-right-paid.  I suspect that the answer is probably “both” — adjusting for worker quality, the median government worker is probably overpaid, while in skilled specialties, salaries are probably not attracting as much of the top-flight talent as we’d ideally like.

Over at the Wall Street Journal, AEI’s Andrew Biggs and the Heritage Foundation’s Jason Richwine continue the debate by looking at some of the problems with studies like the one conducted by Berkeley’s Center on Wage and Employment Dynamics, which concluded that Golden State public employees “are neither overpaid nor overcompensated.” Biggs and Richwine explain that once we take into consideration pension benefits, retiree health benefits, and job security, California public employees are compensated up to 30 percent more generously than similar employees in large private firms. (Interestingly, Richard Cohen of the Washington Post agrees that government pensions are “an obesity epidemic.”)

Predictable crises in government finances are overwhelmingly linked to pension problems (that’s true at the federal level, too), because that’s the area where there is the greatest difference between what is promised and the revenue collected to pay for what is promised. I don’t see how the system can be sustained without driving this country over the cliff. The question is whether we can move fast enough to reform it before it’s too late.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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