In the last issue of The Economist, I came across a very strange article on California’s public sector. The basic argument was that the state government is far less wasteful than is commonly believed. Rather oddly, the article looked to the number of state employees per 10,000 residents as its indicator of bloat while ignoring compensation levels.

[T]here seems to be much less of this waste than the politicians like to claim, at least as far as head counts are concerned. As of 2008, the last year for which comparisons are available, California had 108 state employees for every 10,000 state residents (see chart). That has hardly changed in a decade and is far leaner than the average (149 state workers per 10,000 residents) of America’s other states. Only Florida and Illinois have fewer state workers relative to population. Even if employees in local government, such as teachers, are added, California’s public workforce is still among the nine leanest.

“At least as far as head counts are concerned” does a lot of work in that first paragraph. Wouldn’t we also want to pay attention to public sector wages? Consider the possibility that California is overpaying its relatively small public sector workforce, a problem that could be solved by offering pensions and benefits to new employees comparable to what one might find in the private sector. The article notes that California’s correctional officers receive unusually high wages by national standards, and this is an important point. The major Republican gubernatorial candidates in California really have committed themselves to law enforcement policies that make it difficult to see how they’d reduce expenditures on California’s bloated correctional system.

But alas, the bloat extends to the state’s public school teachers. The average teacher salary in California is the highest of the 50 states ($63,640), ahead of Connecticut ($61,039) and New Jersey ($59,730). It’s worth noting that public school teachers enjoy benefits that comparable private sector employees do not, and that they work 20 percent fewer days than the vast majority of full-time employees. To be sure, teachers also spend a considerable amount of time preparing for work outside of the normal work day, though that is presumably true of many other workers as well.

California’s relatively generous compensation could reflect the fact that California is home to a number of high-cost metropolitan areas. The American Federation of Teachers offers a useful chart comparing average teacher wages to the wages of average workers in the same state. In Pennsylvania, teachers in traditional public schools earn more than 65.2 percent more than average workers. In California, teachers only earn 37.6 percent more than average workers. In the District of Columbia, at the other extreme, teachers are only 2.9 percent ahead of average workers. This isn’t the most useful measure, as teachers have skills that presumably would yield above-average compensation in the private sector. But the variation across states is striking, and one wonders how much of a role political bargaining power plays in compensation decisions.

Josh Barro’s latest column for RealClearMarkets offers additional perspective on the gap between wages in the public and private sector. Note that these are national figures, but they are relevant to the California case.

In the first quarter, the average public employee earned $4.45 worth of health benefits per hour, compared to $2.01 in the private sector. In general, public employees have more generous health plans and pay a smaller portion of their insurance premiums. The difference is partly explained by differences in job mix – public employees tend to be more highly skilled and educated. But even comparing employees in similar job types, the differential remains. For managerial, professional and related workers, health benefits average $4.90 per hour in the public sector, versus $2.94 in the private sector. Sales and office workers: $4.11 public, $1.80 private. Service workers: $3.62 public, $0.90 private.

So is it fair to say that there isn’t very much waste when it comes to public sector compensation in California? One gets the impression that the state government could actually increase the head count of front-line employees while holding total compensation constant, if only benefit levels and salaries were shaved to something approaching the private sector norm. Indeed, we seem to have the worst of both worlds: there are certain jobs — policing comes to mind — that simply require a large number of bodies, and paying a smaller number of bodies more overtime won’t actually give you the results you want.

Texas, incidentally, had 275 K-12 education employees per 10,000 residents in 2008, well above the national average of 226. California, in contrast, has 182. My source for this number is the Center for Continuing Study of the California Economy, which The Economist also consulted. As for overall employees per 10,000 residents, the number The Economist considers very important, Texas is ahead of California by 563 to 484. So should California follow Texas’s lead? That’s a natural conclusion to draw, and William Voegeli made the case in City Journal a few months back:

State and local government expenditures as a whole were 46.8 percent higher in California than in Texas in 2005–06—$10,070 per person compared with $6,858. And Texas not only spends its citizens’ dollars more effectively; it emphasizes priorities that are more broadly beneficial. In 2005–06, per-capita spending on transportation was 5.9 percent lower in California than in Texas, and highway expenditures in particular were 9.5 percent lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam. With tax revenues scarce and voters strongly opposed to surrendering more of their income, Texas officials devote a large share of their expenditures to basic services that benefit the most people. In California, by contrast, more and more spending consists of either transfer payments to government dependents (as in welfare, health, housing, and community development programs) or generous payments to government employees and contractors (reflected in administrative costs, pensions, and general expenditures). Both kinds of spending weaken California’s appeal to consumer-voters, the first because redistributive transfer payments are the least publicly beneficial type of public good, and the second because the dues paid to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.

It could be that Voegeli is overstating the case. But the fact that Texas employs more front-line public service workers suggests that something really is broken with the California model. One gets the impression that The Economist chose not to highlight numbers that undermined its arresting thesis, which is a shame.

The Economist concludes on a very unpersuasive note:

There has simply been no “runaway spending”, reckons Steve Levy of the Centre for Continuing Study of the California Economy, based in Palo Alto. State spending spiked in the middle of the past decade, but has been cut by about 16% since 2008. This year it is likely to amount to between 5% and 6% of personal income, which is lower than it was three decades ago. Anybody who promises to solve California’s problems by simply attacking government waste should take note.

It’s worth noting that personal income has increased considerably over the intervening years, and it is not clear that the returns to additional public spending have been very impressive. The fact that state spending has been cut by about 16 percent since 2008 is surely related to the fact that revenues have collapsed due to a downturn in the broader economy. The article never really speaks to the question of whether or not California voters are getting bang for the buck.

Overall, this was a pretty disappointing effort.