JONATHAN COHN AUGUST 8, 2010
This is an item about why your local fireman or teacher has such a nice retirement package, why you probably don’t, and the way conservatives are using that contrast to advance their broader economic agenda.
Friday’s New York Times had a column about the “coming class war,” focusing on the fact that retirement packages for public employees seem to be a lot more generous than the ones for private employees. This is not a new discussion. Experts and think-tanks have been churning out research on the topic for years. But, thanks in part to the recession, the pension gap has become a major political controversy.
Conservatives say that excessive public employee pensions exemplify the greed of unions (which sought these generous benefits for public employees) and inefficiency of government (which agreed to pay them). If local and state governments are struggling financially, these conservatives say, they should figure out some way to reduce or revoke those promised benefits, rather than come to Washington and beg for help from the taxpayers.
The Senate Republican Policy Committee sums up the right’s mantra succinctly: “No state bailouts should be contemplated until the wages and pensions of public sector employees are brought into line.” Translation: You shouldn't have to give up another cent of your taxes until government stops paying its bureaucrats so damn much.
I'm sure that argument resonates with a lot of Americans, particularly those who are struggling themselves. But is the premise of the overpaid public employee valid? That's not so clear.
While raw statistics show that public employees get more compensation than private employees doing comparable work, research that adjusts for variables like education has suggested otherwise. Earlier this year, a study with such adjustments by economists Keith Bender and John Heywood concluded that compensation for local and state workers was, on average, 6.8 to 7.4 percent lower than compensation for comparable private sector workers.
Also, as Dean Baker of the Center for Economic and Policy Research points out, many public employees don’t get Social Security. Overall, he says, “most public sector pensions do not provide retirees with an especially high standard of living.” Exceptions to this rule frequently include firefighters and police, particularly in New York. Then again, they risk their lives to protect the rest of us from lethal threats, which is more than you can say for CEOs like the former telecom executive who in 2007 retired with a $159 million benefit package.
To be clear, I can't vouch independently for the calculations or the conclusions in all of this research. (Among other things, Andrew Biggs, of the American Enterprise Institute, suggests public employees really do fare better once you account for retiree health benefits.) If nothing else, the fact that so many public employees still have traditional pensions is increasingly an anachronism. The majority of private sector retirees don't have retirement plans from their employers. Those that do increasingly have private investment accounts (like 401Ks) that don't guarantee fixed benefits.
And to the extent this gap exists, conservatives are surely right when they say that unions and government accommodation of them are the main reason. Unions represent around 37 percent of public sector workers, compared to 7 percent of private sector workers. Note that one of the few exceptions to the public-private compensation differential seems to be unionized industrial laborers, like the auto workers--and that, during last year’s debate over what to do with the auto industry, we were having a very similar conversation about the relatively rich benefits that members of the United Auto Workers were getting.
But ask yourself the same question you should have been asking then: To what extent is the problem that the retirement benefits for unionized public sector workers have become too generous? And to what extent is the problem that retirement benefits for everybody else have become too stingy?
I would suggest it's more the latter than the former. The promise of stable retirement--one not overly dependent on the ups and downs of the stock market--used to be part of the social contract. If you got an education and worked a steady job, then you got to live out the rest of your life comfortably. You might not be rich, but you wouldn't be poor, either.
Unions, whatever their flaws, have delivered on that for their members. (In theory, retirement was supposed to rest on a "three-legged stool" of Social Security, pensions, and private benefits.) But unions have not been able to secure similar benefits for everybody else. That's why the gap exists, although perhaps not for long.
The fact is that local and state goverments have promised a lot more than they can deliver financially, in part because people love public services but hate to pay the taxes for them. In the short term, then, budget cuts are probably inevitable. And, in this political universe, the likely alternative to reducing public employee compensation is cutting essential services for people who are just as worthy and quite likely more needy.
In the long term, though, it seems like we should be looking for ways make sure that all workers have a decent living and a stable retirement, rather than taking away the security that some, albeit too few, have already. But that's a conversation about shared vulnerability and shared prosperity--a conversation we don't seem to be having right now.