How to Tell if Public Sector Workers are Overpaid

For some reason economists are generally accused of only paying attention to money, but in general economists would follow your approach. Looking at how many people want to take a job versus leaving it automatically adjusts for all those non-salary benefits, including work environment and so forth. It seems like it’s the non-economists who want to focus on money alone in this case.

Top economists, accountants, and attorneys can make 3 to 10 times more. Average ones cannot. Maybe it depends on what state you are in, but I would say that for the average worker, government is probably going to be better than the vast majority and possibly all of their other job offers, especially once pensions are added on. For above average workers, the pension makes it close, but the kicker is the lower hours. I have a friend who works for the state in accounting, from home, and does his entire week’s of work in three heavy days. He has four day weekends, every week. He’s someone who could earn that 3 to 10 times salary, but on a per hour basis he’s doing pretty damn well.

People of completely average ability, doing average jobs for the government, end up earning close to or even 6-figure salaries once benefits and pensions are tacked on. In much of the country, these same people are earning $35,000-$50,000, paying for their own healthcare and retirement.

I agree that looking at job queues is probably the best way to think about this issue, although one problem is that there just isn’t a ton of data. It would be nice if Congress could pry some out of executive branch agencies, say, to see how many applications they receive for each job opening relative to similar private employers. Work in the late 80s by Alan Krueger found a significant difference in the number of applicants per job, while work by Steven Venti concluded that 3-6 times more people want to work for the federal government than can actually find jobs, so even large pay cuts would have only a small effect on employee quality.

I’m not aware of any significant jurisdiction where we do not hold so-called “elections” every two or four years. In the overwhelming majority of these, an incumbent has to face a challenger who claims to be able to do the job better. Of course, finances are always high on the list of election issues.

And after the People decide, these newly- or re-elected officials either dictate or negotiate salaries for public employees to be paid over the next couple of years.

In this sense, public-sector employment somewhat resembles a competitive market and claims that prices are badly set are as intellectually empty, or even dishonest, as are naïve claims that speculators are always driving up the cost of oil.

So the claim that public sector employees are broadly overpaid, either asserts the impossibility of democracy to govern reasonably, or is an admission that there is more to running a (city/county/state/national) government than finding the lowest-cost employees. But neither of these inconvenient interpretations seem to motivate the discussions. The entire exercise seems to rest more on a political desire to reduce the scope of public services provided to all Americans, justifying cuts in services by claiming they’re over-priced, or running them into the ground by driving talented individuals into private industry.

Certainly, if there is one profession where our society universally says that education and talent matters, it is … education. And sure enough, over the past decades, we have seen schoolteachers shift from being in the upper half of their graduating classes, into the lower half. This cannot be because they are overpaid, or because their pensions are too generous. It might be because more aggressive management is driven out of the public sector by income considerations, however.

Cross-sectionally, lower-paying states turn out youngsters that are less well educated than higher-paying states, reinforcing the notion that attacks and budget cuts on this major input to productivity harm the nation greatly. Just this week I’ve seen a study suggesting that each bottom-quintile teacher replaced with a median teacher would contribute something like $400,000 per year to our national product, a stunning statistic that makes obsession over salaries seem the most foolish self-destruction possible.

And in contrast, it is certainly true that private industry employees, especially in the service sectors, are not chosen purely on whether they are the lowest cost. The huge financial services industry, as an obvious example, has very high salaries and bonuses that often measure opportunities for the entire industry, rather than marginal or relative contribution of individuals to their shareholders’ or our nation’s well-being.

Net-net, Monday-morning quarterbacking of whether our government entities are paying too much per employee — and not attempting to observe Econ 101 goals of maximizing GDP by increasing quality until the marginal benefit of a more productive society matches the marginal cost — strikes me as one of the most wrong-headed debates possible.

Put another way, the labor theory of value doesn’t apply to government workers any more than it applies to anything else.