[quote=EconProf]A couple of observations:
1. Pensions are nothing but deferred compensation. The employee is simply getting the promise of X dollars during retirement as well as regular pay during their working years. A worker’s total compensation is their pay, fringe benefits, pension (if any). (Some jobs also have nonmonetary rewards such as prestige, variety, working with interesting or glamorous people, etc., and some jobs have just the opposite of these benefits. Pay and benefits can be higher or lower to offset these nonmonetary factors.)
Our posts are throwing out anecdotal examples from our own experience that don’t really prove anything. However some clarity is achieved when posters bring up death rates by occupation and the full lifetime cost of public pensions.
I’d like to add a market test to the debate. The total compensation of private sector employees is roughly determined by supply and demand. Job seekers are the suppliers of labor and employers are the demanders. Of course there is no exact price point for each occupation, but a range that can broadly move up or down with changes in supply and demand. Employers are not stupid enough (usually) to overpay for their next hire if it is way over market. Job seekers are also not going to take lower than market total compensation if they know, or believe, that they can do better.
This healthy private sector competition establishes average wage levels. What about in the public sector? When public sector unions negotiate against politicians, there is less pushback from the taxpayer’s representatives because it is not their money. Further, they have less incentive to curb excessive pension benefits because that cost will be borne years or decades in the future. The unions and their workers can thus greatly enhance the total compensation of their jobs by taking it later in life. They are more patient, and maybe smarter, than the politicians across the table.
2. Another market observation to throw light on whether government employees are overpaid or underpaid. First, what is the quit rate of, for example, firefighters and police? Second, how many people line up to apply for these jobs on the rare occassions when openings occur? Answer those two questions and you will get a better idea of whether total compensation is too low or too high as compared to the private sector.[/quote]
Yes, the DB pension benefits are a form of deferred compensation. Yes, public employees give up current pay/benefits for future pay/benefits. This is why they are angry about the attacks against public workers. When people talk about trying to change vested benefits, that is equivalent to telling someone in the private sector that we’ve decided their employer overpaid them in 1995-2010, and we now want to claw back some portion (sometimes, a significant portion) of that pay that they’ve **already earned.** Unions ARE making concessions and they have already agreed to pay more toward their pension contributions…which puts to lie the notion that taxpayers are the only ones who will pay for the deficits. What union members will not do is give back pay that was already earned.
1. As for your claim regarding wages/benefits in the private sector being determined by supply and demand…yes, and no. Corporations have far more control over the supply of labor than workers do the supply of jobs. Companies have lobbied for policies that make it easier and more profitable for them to import cheap labor and export good jobs, shrinking the jobs/labor unit ratio for local workers. Companies can merge with or acquire competing companies, reducing the supply of jobs. Companies use patents and other IP protections to keep competitors out of their space, reducing the number of jobs.
Without unions and political power workers cannot manipulate the supply of labor like corporations can. Even if they are willing to move for job opportunities, they do so at a very high cost and without any assurance that the job will last long enough to make the move worthwhile/ensure they can recoup the costs of moving. A truly “free” market would allow for both sides to have the same level of power and control over supply/demand. Why should corporations have more control over the supply/demand of workers than labor? If companies can control the number of jobs available by suppression of competition, etc., then labor should have the same power over the supply of workers.
Ultimately, at the bottom of the economic pyramid stands Joe Sixpack — laborer and consumer. The more we chip away J6’s wages/benefits, the more we chip away at the purchasing power of American households that support ~70% of our GDP. It’s funny how so many people fail to connect the dots.
From everything I’ve observed, the level of pay is most highly correlated to how close one is to the control of money flows. It often has nothing to do with how hard one works or how dangerous one’s job is (if that were the case, illegal immigrants would be some of the highest-paid people in this country).
2. As to whether or not public employees are over/underpaid, during the good times, it is very difficult to recruit and retain qualified employees, especially when the economy is booming. Police and fire departments were handing out signing bonuses during the first half of the decade. The myth of “lines around the corner” when a job opens up was addressed here:
As for the quit rate, the **#1 reason** for the higher retention rate is the pension benefits. That’s why they have them. It is VERY expensive (many tens of thousands of dollars) to recruit, train, and equip a new firefighter or police officer. Public agencies cannot afford a high turnover rate, especially in public safety, which is why the compensation for these positions is designed to attract **and keep** qualified personnel. I’ve said it before: take away the DB pension benefits, and the costs of recruiting/training/equiping new employees will likely eat up most (or all) of any “savings” from the reduced pension contributions.
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Just out of curiosity, how many people do you think would line up to make $300K or $1MM if a CEO position were to open up to the public? Only an idiot would believe that CEOs are paid what they are because there is a dearth of qualified people who could perform these jobs. No, they make this money because they (and others in similar positions in our society/economy) are the ones who control where the money goes.
From what I’ve heard, over 100,000 people audition for American Idol, so why does the show have to offer a $1MM contract (and six-figure contracts to the runners-up, from what I’ve read)? BTW, you’re paying for that if you buy Coke, Ford, AT&T, and many other products who sponsor the show.
We also see the stories of low paying job openings with thousands of applicants.
Are Walmart employees paid too much? If we reduce their pay, how will that affect our society and economy? Will taxpayers need to pick up where Walmart’s wages leave off?
Simplistic theories about economics and “supply and demand” are nice, but when they ignore other, more powerful forces in our economy/society, they are meaningless (and often dangerous).
