By JR on Saturday, September 18, 2010
Outrageous public pay, pensions, and inherent corruption are enraging private sector America
We really are two Americas, but not those captured in the stereotypical populist class warfare speeches that dramatize the gulf between the rich and the poor. Instead there is a new division in America that affronts a sense of fairness. That division is between the workers in the private sector and the workers in the public sectors. No guesses which is the more protected. A new study by the Mayo Research Institute, based in Louisiana, demonstrates that there is a striking differential in the impact of the recession. In 2009, the study found, "private-sector workers were nearly three times more likely to be jobless than public-sector workers."
Political tension is bound to grow when private sector jobs disappear faster but at the same time private sector compensation is being squeezed much more than that of the public sector. The rate of compensation for a generation of public service employees has gone up much faster than the personal income of the people who pay for these workers. The gap has widened dramatically between private sector workers at all levels of remuneration as compared to employees in federal, state, and local governments.
Once there was a time when government work offered lower salaries than comparable jobs in the private sector, a difference for which the public sector compensated by providing more security and somewhat better benefits. No longer. These days, government employees are better off in almost every area: pay, benefits, time off, and security, on top of working fewer hours. They can thrive even in a down economy. It is tantamount to a wealth transfer from the citizens to the people who serve in government. Millions of public workers have become a kind of privileged new class—a new elite, who live better than their private sector counterparts. Public servants have become the public's masters. No wonder the public is upset.
Of course public service workers should receive a fair level of pay and decent retirement and other benefits. What is galling, though, is when they routinely find ways to beef up their superior pay so as to turbocharge their pensions (typically based on a percentage of salary), while many of those in the private sector lack viable pension programs at all. This will stick future generations of Americans with higher taxes to meet these public service pension obligations and bring about reduced public services. Nice work if you can get it!
More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies like the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. You have a dynamic conflict of interest when the self-interest of the legislators is to appease the public service unions with pledges that won't come due until the lawmakers have left office.
Their successors will have to cope with the inherited debt burden—and ultimately the nation's taxpayers are stuck with the bill at the federal, state, and local levels.
Behold the consequences: less money for social services, libraries, road improvements, education, and other public service programs, i.e., the whole basis of the initial arguments for more public sector pay! States and localities don't have the federal government's ability to print money, and they have a much more limited capacity to borrow. The result, according to the Pew Center on the States, is that they face underfunded benefit and pension obligations that exceed $1 trillion.
That estimate was before the stock market drop in the last couple of years. Liabilities for debts for these entities have increased from an estimated 12 percent of GDP in 1980 to an estimated 22 percent this year, approaching $2.5 trillion.