INSIGHTS: PUBLIC SERVANTS BETTER PAID THAN PRIVATE SECTOR
Guest Columnist Tom Schatz:
President, Citizens Against Government Waste
Think fast: Who gets better compensation – state government workers or their private-sector counterparts? Those who answer the private sector would be incorrect.
While many people believe that government employees make significant financial sacrifices, they are, in fact, doing quite well compared to the private sector. A new study commissioned by Citizens Against Government Waste found that in 22 major job categories, state governments, on average, pay 6.2 percent more per hour in wages and benefits, including pension benefits, than their counterparts in the private sector. Even worse, unfunded pension liabilities for all state and local governments are estimated to range from $2 trillion to $4 trillion, or an average of $40 billion to $80 billion per state.
This combination of excessive wages, pensions and other benefits at the state and local level is wreaking havoc on public finances across the country. It helps explain why cities and states from coast to coast are either bankrupt or heading in that direction, and why governments are struggling to provide basic services, from police protection to paving potholes. Despite this dire fiscal situation, there has been a great deal of backlash by public-employee unions and their supporters against efforts to normalize what are often extravagant government compensation packages.
The Citizens Against Government Waste analysis compared state employee wages to private-sector wages and benefits for the same occupations across all 50 states, utilizing state government data from the National Compensation Survey of the Bureau of Labor Statistics (BLS).
Some states are out of control. Texas has the largest difference in pay for state government employees versus the private sector. California has the highest weighted average hourly wages, and not just because of higher costs of living. Public-employee pension plans in California are largely responsible for the bankruptcy of Compton, Mammoth Lakes, San Bernardino and Stockton. More cities will follow.
Some states are better than others. Utah and Montana compensate state government employees closest to the private sector, but still pay higher wages and benefits than those paid to private-sector workers. In fact, no state on average pays public employees less than their private-sector counterparts.
The study also uncovers some big surprises. For example, an architect employed by a state government makes roughly 40 percent more in salary, retirement pensions and health care benefits than an architect working for a private company.
Generally speaking, the crisis in public pension liabilities has occurred because politicians have agreed to exorbitantly high wages and pledged unrealistic retirement benefits that taxpayers cannot meet. Meanwhile, state employee unions have fought, at the expense of taxpayers, alterations to wage and benefit packages. Warren Buffett has described the money owed to public-sector retirees as a “time bomb.” Once it goes off, we will find ourselves in the middle of a crisis that rivals the current situation in Greece.
If that crisis occurs sooner rather than later, it could end up being directly related to a dangerous ballot initiative in Michigan this November. The Protect Our Jobs Amendment, or Prop 2, “would add the right to collective bargaining for public and private sector employees to the state Constitution.” This would make collective bargaining a constitutional right, giving unions the unprecedented ability to override all past, current and future state and local laws, including long-standing pension reforms that have helped save taxpayers more than $4 billion. If Prop 2 wins, other states will follow, setting off a nationwide avalanche of bankrupt cities, counties and states.
Hard-working Americans who are struggling to pay their bills, find a job or set aside enough for retirement are being forced to pay for extravagant state government employee compensation. These employees are supposed to be public servants, not a privileged class. Taxpayers know it is unfair, it is unaffordable and it cannot continue. Someone needs to cry, “Enough!” A good place to start is by holding elected officials accountable for this massive waste of tax dollars.
ON THE ECONOMY: INDUSTRIAL DISEASE
By John Dunham:
Managing Partner, John Dunham & Associates
“Warning lights are flashing down at Quality Control, somebody threw a spanner and they threw him in the hole. There’s rumors in the loading bay and anger in the town. Somebody blew the whistle and the walls came down There’s a meeting in the boardroom they’re trying to trace the smell. There’s leaking in the washroom there’s a sneak in personnel. Somewhere in the corridors someone was heard to sneeze, ‘goodness me could this be Industrial Disease?'”
The first verse from the 1982 Dire Straits song seems to hit the nail on the head when looking at recent corporate profit numbers. Over the past two weeks, corporations ranging from Dow to 3M to John Deere to United Airlines all reported disappointing 3rd quarter profits. Revenue is coming in 1% below year-ago levels, and earnings are only 1.1% higher than a year ago. This has led to an abrupt end in what had been a booming US equities market – falling 3.3 percent since peaking in early October.
The financial analysts are all saying that these low earnings are unexpected, but from a straight economic perspective they were completely predictable. Consider these two facts.
Economic Growth Has Been Driven By Exports
In fact, since the end of the last recession, exports have accounted for a third of all of the growth in GDP — however, that percentage has been falling, and exports actually turned negative in the third quarter. Note that this is not net exports (or exports minus imports) but simply exports of goods and services. That export boom led to high earnings for world industry leaders like 3M, Dow and Deere, companies that rely on export markets for much or their overall sales. Weakening markets in China, Brazil and especially Europe all foretold that exports would weaken as the year went on and this would impact corporate earnings.
Labor’s Share Of National Income Has Increased
Since the beginning of the decade, wages have accounted for about 75 percent of the value of every dollar of goods and services sold in the United States, with rents accounting for about 1.5 percent and the rest going to capital. In other words, 23 percent of the value of everything we purchase pays for profits and returns to investors. During the recession this fell dramatically to about 20 percent and has yet to recover. In fact, since the recession began, returns to labor have made up over 76 percent of each dollar in stuff sold. (Note that none of this accounts for taxes). So even though reported earnings have been rising rapidly from a very low 19.7 percent of overall sales they are still very low (20.5 percent) in historical terms. This has to be reflected in earnings growth figures at some point.
Until businesses are able to fully incorporate both wage and commodity price inflation into the prices that they charge consumers, profits will continue to be squeezed – a factor that will be reflected in the US equity market for some time.
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