PRI Study: California public-sector compensation soaring

Analysis

Dec. 7, 2012

By John Seiler

A new study by the Pacific Research Institute shows that compensation for the public sector in California is soaring far above that of the private sector. PRI is CalWatchDog.com’s parent think tank.

For California state and local governments, “a key driver of the budget crises is overly generous government compensation packages,” the study found. “Consequently, California’s budget crises will never be sustainably resolved without addressing the problem of overly generous state and local government compensation.”

“Policy Reforms to Control Rising Government Compensation Costs” is written by Wayne Winegarden, Ph.D., a PRI senior fellow and a lecturer in economics at Marymount University.

Winegarden’s key findings:

1. “California’s government compensation costs are already excessive.” He cited a 2011 study by Jason Richwine and Andrew Biggs, which found:

“In the case of California public employees, wages are slightly lower in the public sector. Initially, benefits appear only slightly higher, implying rough parity in compensation between the public and private sectors. However, properly accounting for retiree health benefits and defined benefit pension plans generates a public compensation premium of around 15 percent. The additional job security granted to public-sector employees is equivalent to an approximately 15 percent increase in public compensation, meaning that the total public-sector pay premium in California may be as high as 30 percent.”

I would add that Richwine and Biggs just came out with an op-ed in the Wall Street Journal which found that government workers (teachers were not included) put in about a month less time on the job every year than do private-sector workers. They wrote:

“Based on the most detailed and objective data set available, the private sector really does work more than the public sector. This fact may hold different lessons for different people, but our own take is simple: Before we ask private-sector employees to work more to support government, government itself should work as much as the private sector.”

In sum, government workers get paid 30 percent more than private sector-workers, but work 8 percent (one month) less. Nice part-time work for full-time pay if you can get it.

However, I’m also mindful of the old libertarian maxim, “We’re lucky we don’t get all the government we pay for.” I would be happy if every regulator in the state, even while getting paid their hefty salaries and benefits, stayed home and played video games.

Widening pay gap

Back to the PRI study by Winegarden. He also found, “California’s government compensation premium over California’s private sector is widening.” That means:

“The benefit premium of state and local government workers is not a new phenomenon …. over the past 40-plus years California’s government compensation premium relative to California’s private sector compensation levels has been growing and is currently near historic highs.”

Even as the private sector that pays for everything through record-high taxes shrinks, the government sector that lives off it keeps growing.

Compensation higher than other states

Winegarden also found, “California’s government compensation premium relative to other states cannot be justified based on California’s relatively higher incomes and cost of living.”

Certainly, California’s cost of living is higher than in other states — in part because of the high cost of taxation and the regulations imposed by all those highly compensated functionaries.

But Winegarden wrote:

“State and local government workers in California receive a compensation premium over state and local government workers in Texas and the U.S. that is consistently greater than the compensation premium received by California’s private sector workers compared to private sector workers in Texas and the U.S.”

That makes sense. If you’re in the private sector, you’re competing against not only other Americans, but all 7 billion people on the globe. If costs go up, then worker pay has to go down — or the company moves to another state or country, or goes broke.

By contrast, when government costs go up, taxes are raised — as we just saw with the passage of Proposition 30 and Proposition 39, as well as scores of local taxes and bonds.

There is some check on government because departing businesses and workers then don’t pay taxes in the place from which they were exiled. But that check usually takes a few years to dig in. And governments also commonly meet funding crises by cutting services, such as parks and roads, rather than reducing generous employee pay, perks, pleasures and pensions.

Excessive and growing

Winegarden concluded, “[T]he evidence regarding California’s state and local government compensation costs are clear: when all benefits are included, these costs are excessive and growing.”

The reasons:

“California implements policies that encourage excessive compensation. These policies include mandating collective bargaining, empowering public sector unions, and, in some areas, mandating binding arbitrations. These policies have led to practices such as excessive pension spiking, low retirement ages, covering health care services during retirement, generous pension levels, and permitting the practice of receiving both a government pension and a government salary. When coupled with the declining asset values of California’s pension system, these trends have created a crisis waiting to happen.”

So, that’s how it is as we rush toward 2013. The private sector shrivels under the immense burden of government, even as the government functionaries work less and are paid more — and as taxes are jacked up to record levels to pay for everything.

Until the system falls down and all Jerry Brown’s horses and all the unions’ men couldn’t put it together again.