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Monday, March 28, 2011

From ECON 101

Over the past few months, Republican governors have been attacking public workers as if they were to blame for the prolonged recession. Their salaries, benefits or jobs must be slashed to balance budgets. The banks and Wall Street investors who promoted a real estate bubble and trashed the economy are apparently long forgotten. The most affluent Americans, who benefited disproportionately from the unsustainable growth -- and who are again back on their feet -- are not being asked to shoulder more of a burden. Indeed, they got renewed tax cuts when the "Bush" (now Obama) cuts were renewed.

Thus, it seems, only the local librarians, teachers, fire fighters, or police officers can be blamed and made to pay.

Many critics of public sector workers reference seemingly damning statistics from a January 2009 Forbes magazine piece by Stephane Fitch:
The common presumption is that public servants forgo high wages in exchange for safe jobs and benefits. The reality is they get all three. State and local government workers get paid an average of $25.30 an hour, which is 33% higher than the private sector's $19, according to Bureau of Labor Statistics data. Throw in pensions and other benefits and the gap widens to 42%.
That piece of information certainly makes it sound as if the public sector might be a place to make cuts when states are facing budgetary pressures.

However, the statistic is very misleading -- making a false comparison according to economists Robert Pollin and Jeffrey Thompson in the March 7-14, 2011, issue of The Nation:
What figures such as these fail to reflect is that state and local government workers are older and substantially better educated than private-sector workers. Forbes is therefore comparing apples and oranges. As John Schmitt of the Center for Economic Policy Research recently showed, when state and local government employees are matched against private sector workers of the same age and educational levels, the public workers earn, on average, about 4 percent less than their private counterparts. Moreover, the results of Schmitt’s apples-to-apples comparison are fully consistent with numerous studies examining this same question over the past twenty years.
Public sector employment should provide some job security -- workers earn less than their peers in the private sector.

Indeed, educated workers in the private sector should support them. If they are fired from their public sector jobs, then the employment market will be flooded with a larger number of more-educated workers. With a greater supply of workers chasing scarce jobs, salaries and benefits for private sector workers will go down. While the current recession has led to very high unemployment rates, the rate for college graduates has been at 5% or less. That's far too high, but the rate for all other job-seekers has been at least double that figure.

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