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Life Is Good On The Government Payroll; Private Industry, Not So Much

The Wall Street Journal opines today on a subject that I believe will be the next big issue to energize voters. Unfortunately for Democrats it strikes at the core of one the party's largest constituencies: public employee payrolls.

It turns out there really is growing inequality in America. It's the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate the pay inequities that enrich the few who wield political power.

These statistics highlight the growing gulf that separates the private sector and the political class. As I've said before, the private sector creates ALL of the wealth in this country. Every dollar spent by federal, state and local governments is created by the private sector. Every dollar.

As many of our readers know, the private sector is constantly evolving and remaking itself. With changes in international economies (such as China, India, Brazil, Russia and others) our own domestic corporations have been forced to change and many of these changes (often referred to as restructurings) have been painful for the employees and owners of American industry. The acronym RIF (reduction in force) is a constant reminder to those in the private sector that job security is fleeting. For example, over twenty years ago one of America's most revered corporations subjected itself to a wrenching restructuring that resulted in thousands of lost jobs, the renegotiation (read: reduction) of retirement benefits (including health care coverage) and reduced pensions for tens of thousands. This company, IBM, had enjoyed a well deserved reputation as a company that long guaranteed job security for decades. What was remarkable about the IBM restructuring was that it was voluntary, painful and ultimately successful. Had the company not taken on the difficult task it would not have survived. There are IBM retirees in my own community today that still live with the painful results of that restructuring. They changed their lifestyles, took part time jobs, downsized etc.

Corporations today are experiencing similar restructurings as they respond to a changing economic environment, which raises the question: why are government payrolls not shrinking in a similar manner? Why is public employee compensation rising when the creators of the wealth are receiving pay cuts and pink slips? (That's not a rhetorical question.) As private sector unemployment worsens and people exhaust their savings after just "hanging on" during a year or more of joblessness the swelling political class (with its high priced salaries, benefits, retirement, and permanent job security) will become a target of anger and resentment from the private sector. The resentment is a result of a lack of public sector accountability and discipline (both attributes that determine survival in the private sector).

There is a much more anger and resentment on the horizon. Just sayin', Josh.

Note

Hmm...here's a good example.


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Comments (23)

These ridiculous benefits f... (Below threshold)
TexBob:

These ridiculous benefits for federal workers are one the reasons our country is being bankrupted. Add to that, the ridiculous pension benefits for congrASS and it's enough to make people sick. One term, and full pension for life on the taxpayer dime.

Pretty soon, they WILL run out of other peoples money to spend.

But...but...but....the Demo... (Below threshold)
GarandFan:

But...but...but....the Democrats PROMISE a "worker's paradise". Just look at all they've accomplished in Detroit and LA!

Indeed, it's a (Government)... (Below threshold)
jim m:

Indeed, it's a (Government) Worker's Paradise until the rubes wake up and see who the real thieves are.

"(That's not a rhetorical q... (Below threshold)
914:

"(That's not a rhetorical question.) As private sector unemployment worsens and people exhaust their savings after just "hanging on" during a year or more of joblessness the swelling political class (with its high priced salaries, benefits, retirement, and permanent job security) will become a target of anger and resentment from the private sector"

Dont worry, Barry plans on unionizing the whole country. That will fix everything.

Let me say that in the firs... (Below threshold)
James H:

Let me say that in the first place, it's a little tough for me to opine on the worth vs. non-worth of government vs. private-sector salaries. I live and work in the Washington, DC, area, and private-sector and public-sector salaries actually look comparable from where I sit.

Then again, DC can be hideously expensive to live in or near. Around here, it's entirely expected and reasonable that your average DINK household will pull in around $100k and barely be above water.

In case this sounds ridiculous, consider this: A two-bedroom apartment will run you at least $1,500 to $1,600/month. Student loan payments for two will probably be $600 to $800/month at the low end, possibly quite a bit more if one or both members of the households hold graduate degrees. And so forth.

From there, I'd like to offer a couple more points.

1) Your average government worker is hardly the "political class" or the "governing class." He's probably a working joe with responsibility for his own little chunk of work and little actual decision-making power. Excepting, of course, people from about GS-13 on up. The "political class" label is more appropriately applied to members of Congress, White House staff, and the top four levels of Cabinet agencies, who tend to have actual decision-making power and are politically appointed.

2) Just as public-sector salaries are somewhat insulated from the depressive effect of a bust cycle, they're also largely immune to boom cycles. A government lawyer might make $85k/year to his private-sector counterpart's $65k/year right now, but one year from now when big-ticket legal work kicks in again, that private-sector attorney might gull his way into $120k+/year, while the public-sector attorney might hit $90k for work that requires roughly the same expertise.

3) In this region, people will take government jobs with the specific expectation of flipping to often higher-paying private-sector work. A person will take, say, a contract-management position with DoD. A few years later, this same person will then hunt up a position with a DoD contractor ... and that contractor will pay a premium for the experience this person developed at DoD. If you want to keep employees from going contractor, you have to offer them reasons to stay.

"If you want to keep employ... (Below threshold)
Upset Old Guy:

"If you want to keep employees from going contractor, you have to offer them reasons to stay."

And there in lies the difference between you and me James. I don't want them (all) to stay. Government is too and and stays too big and intrusive in good measure because there are so (damn) may people in government.

Further, government will never get smaller, less intrusive as long as we keep hiring and retention programs running.

Part of why DC costs so much is the limited availability of living space. Clear out 20% of the federal employees and prices just might drop.

"In this region, people wil... (Below threshold)
GarandFan:

"In this region, people will take government jobs with the specific expectation of flipping to often higher-paying private-sector work."

Yep, they OK the $5K toilet seat, then go to work for the folks who MAKE the $5K toilet seat.

Sort of like when Obama got his wife's hospital a $1 million grant. Suddenly Ms Obama goes from $100K a year to $300K a year.

Guess it's nice work if you can find it.

UOG:Slight problem... (Below threshold)
James H:

UOG:

Slight problem, though. If a government employee moves to contractor status, he sometimes costs MORE than keeping his function in-house! You have to pay overhead, etc., etc. I'm not saying contractors don't do valuable work. Just that they're not always the best solution.

Well, let's not overstate t... (Below threshold)
Caesar Augustus:

Well, let's not overstate the political implications of the income growth disparities. People don't vote based upon what they think other people are earning.

The more relevant item is the vast shrinkage of the private sector workforce since Obama was elected. Over the short term that will hurt Democrats because the recently-unemployed tend to vote against the incumbent party. Over the long term, however, a larger public sector workforce and a correspondingly smaller private sector workforce actually will help Democrats, as people certainly know where their bread gets buttered.....

James H -You famil... (Below threshold)
JLawson:

James H -

You familiar with the 'rubber sheet' theory of gravitational physics? Think of a stretched rubber sheet, then put balls of differing masses on that sheet to represent the planets and sun. Earth makes a bit of a dent, Mercury hardly at all, Jupiter makes a good-sized dent, and the Sun makes the deepest. Put in a black hole (lots o' mass and gravity) and the entire sheet is warped.

I believe the governmental 'mass' inside the Beltway's severely warped your local economy. That mass, as UOG suggests, needs to be reduced for reasonable economic conditions to return.

And it probably wouldn't hurt to evaluate the shed jobs to see whether they're REALLY needed, or just governmental makework that doesn't really need to be done but was made to fill an org chart to justify some bureacrat's desire for a promotion.

You rousing the rabble agai... (Below threshold)
Roy:

You rousing the rabble again?

GarandFan,You do k... (Below threshold)
Rance:

GarandFan,

You do know that the "$5000 toilet seat" is an exaggeration based on an apocryphal story, don't you>

First, the original price was not $5000, but $640.

Second, the original item was not a toilet seat, but a molded fiberglass cover for toilets on military transport planes. They were designed to keep the toilets contents in the toilet in case of turbulence or in the event the pilot had to take evasive action due to ground fire or ground-to-air missiles.

You may think that it is wasteful to pay $640 for a toilet cover, but that's another discussion.

Okay...then how about the $... (Below threshold)
GarandFan:

Okay...then how about the $50 hammer? IIRC, there wasn't anything 'special' about the hammer. Then we could move on to the ashtray. I forget how much that cost. (And while serving on an airborne listening post, I actually got to use one of those.)

My point was that those making the DECISION to PURCHASE products often end up WORKING for the same people who MADE the product.

Lawson seems to have the ab... (Below threshold)
Upset Old Guy:

Lawson seems to have the ability to read my mind. Moving from people from employee to contract worker status does nothing to actually reduce the size of the federal government. Contractor status was not what I had in mind for the workers that would be shed. Our government needs to follow the business model: out-counseling, severance package, a hand shake and best wishes.

Our federal government is sucking money out of the private sector to fund it's projects. That is money that banks could have loaned to businesses capable of creating capitol formation. It is only through real economic growth that we are going to be able to put the unemployed back to work. Anything else is just rearranging deck chairs...

The government can't continue to just incur debt and grow larger. Already Berkshire-Hathaway is paying a lower rate of return than is required to sell T-bonds. When it's easier for Warren Buffett to find people to loan him money than for our federal government something is out of kilter. Buffett's good, but not that good. The problem is the amount of debt our government is amassing with dim prospects of achieving the growth that would allow it to service that debt. Plus investors have already seen this administration screw-over GM stock holders, which is something of an impediment to creating investor confidence.

I'm running on. Bottom line, the federal government has to be smaller than it is. Not smoke and mirrors smaller, actually smaller.

Rance -As I recall... (Below threshold)
JLawson:

Rance -

As I recall, it was for the front latrine in the C-141. After 15-20 years, the original fiberglas was getting brittle. Lockheed was offering replacements for about $75-100k each. (Had to redo the tooling, retest the glass and epoxies, and of course there was the obligatory half-ton of contracting paperwork.)

An aircraft mechanic out at March AFB in CA looked at the panel, and took it out to a fiberglass shop that specialized in dune buggy bodies. The guys there took a look and asked when they wanted it - it'd take 'em a few days to make a mold but they should have it done in about a week, giving the epoxies time to set properly. The cost was about $650 or so - and they apologized for not being able to get it out faster. I think all the C-141s were retrofitted with that particular panel, but I'm not sure.

Of course the media loved the idea of the $650 toilet seat, especially when they were looking to bash the DOD.

I'd agree and disagree with... (Below threshold)
James H:

I'd agree and disagree with you on gov't spending, UOG. As much as I've defended HCR in this forum and elsewhere, I'd argue that government at multiple levels needs to redirect spending.

Take HCR, for example. Yeah, it's nice to ensure everybody can get insurance, subsidize the poor, etc., etc., etc. But the American Society of Civil Engineers estimates that $2.2 trillion is needed over the next five years to fix infrastructure. Health care is nice and all, but it's not a core government function. Keeping the roads and sewers in working order is.

The healthcare fight and the abortion subfight over the last year exasperated me b/c I count on my government to do a few core things, above all else:

1) Keep the Communists from landing on the beach.
2) Keep the infrastructure in working order.
3) Keep the criminals locked up.
4) Provide sufficient market regulation to ensure that market actors can trust one another.
5) Provide a mechanism to resolve disputes.

Everything else is gravy.

James, maybe you already su... (Below threshold)
Upset Old Guy:

James, maybe you already suspect how much we agree on these basics of government spending priorities.

Provide for the common defense in at the top of my list as well. Maybe I'd shuffle your other items around a bit, but they are all solid priorities.

We agree broad form on HCR as well. The bill was way too expensive if covering an additional 32 million people was it's goal. And it's not the government's place to go about reducing my health care cost. I don't want to go on here, I'm sure you see my direction.

By contrast, as you have pointed out, even a vibrant economy falls apart when daily commerce has only expensive air transport available to it. Besides the interstate highway system is a national defense resource.

Gotta' go. Beginning and endings of days are quite busy for me. Nice talking to you. A pleasure really.

Hugh's original post talked... (Below threshold)
Phil:

Hugh's original post talked about private sector downsizing due to economic issues but what about technology? In the private sector the rise of the personal computer and internet has led to the elimination of millions of clerical and manager positions (think about all of the secretaries who used to prepare correspondence for everyone, and lower level managers who handled/approved the physical documents going back and forth). Private companies got much leaner because of technology, and the government just keeps adding and adding jobs.

On a side note, that jac as... (Below threshold)
914:

On a side note, that jac ass that recieved the "white powder", probably cocaine just stated on CNN that tea party protesters are all "teabaggers" quote unquote.

I think I rescind My earlier comment on "caining" James, cause this asshole surely needs one.

GarandFan -As I re... (Below threshold)
JLawson:

GarandFan -

As I recall, based on listening to the old guys in the shop when I was an E1, it was Hughes Aircraft Corp (Yeah, the old hermit) who got a good number of military contracts for aircraft, then used non-standard fasteners for panels and such which needed a special tool to work. Said tool was, of course, only available from Hughes, and was made of cheap pot metal. If you could get a screwdriver equivalent to last a full month, you were doing real good.

And how do you think Howard Hughes got so rich? ;)

My experience with governme... (Below threshold)
jim m:

My experience with government purchasing is a lot like the old cost-plus way of purchasing that the Pentagon used to use (I don't know if that is still in vogue)

When Cook Co. Hospital built a new facility they decided to update ALL their equipment. Virtually nothing was brought over from the old hospital. In order to coordinate such large task they hired a clearing house to purchase all he new equipment. The clearing house requested quotes from the various vendors, all at list price, and then passed them along to the county with their mark up on each item. The county ended up paying minimally 10's of millions more than they needed to.

Nobody ever pays list price. Here the government was coming to us and asking for it. They didn't care about getting value for the money. It wasn't theirs. If they ran out they would just take more from the taxpayers.

Why does the public hate government workers? Because they don't care. They don't try to give you any value for your tax dollar. They bitch and moan when they get don't get a bigger raise when the rest of us are getting nothing in this economy. Government workers get a gold plated pension that we are all paying for and they bitch when it isn't better. It is bankrupting the state in California and Illinois and the government workers are pitching a fit that their benefits are going to be cut.

I've got news for them. In the real world stuff like that happens all the time. Companies go out of business and their pension plans disappear. It happened to me once.

Government workers are all too often a bunch of selfish jerks who feel entitled to the money the rest of us earn. Yes there are a few (very few) who actually care about their jobs and really try to do something good. But their numbers a so small as to be unnoticeable.

jim m - "My experience... (Below threshold)
Marc:

jim m - "My experience with government purchasing is a lot like the old cost-plus way of purchasing that the Pentagon used to use (I don't know if that is still in vogue)"

One thing that's still in "vogue," is the end-of-year-rush to spend what ya got.

Speaking for the Navy that I was part of for 20 years, as the calender turned over to Sept all the ships departments got the edict to spend, spend, spend ALL funds not spent before end of the fiscal year on Oct 1st.

That meant money was spent on some things such as office supplies - that we didn't need - and in fact already had a years supply of.

The same scam was utilized on many things not needed all in an effort to spend it all so the funding allocation wasn't "taken away the next year."

Millions of dollars, possibly billions over the years, were pissed away fleet-wide on this nonsense.

Marc,Academia is t... (Below threshold)
jim m:

Marc,

Academia is the same. My brother works for University of Chicago. They get loads of grant money every year. The trouble is that they have to spend it all or they lose it. Inevitably, they find themselves at the end of the year with some unspent funds. They go through a spending spree to use up the unspent dollars. They didn't need them for their research. They are just using the government largess. They would rather squander our tax dollars than use them for the purpose that they begged them for.

The irony is that these same thieves, for thieves they are, are the very people who lecture the rest of us on how we should spend our money and how we should conserve our resources.




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