JONATHAN COHN FEBRUARY 21, 2011
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The fight in Wisconsin is about power--the power to organize into unions and the power to influence politics. But it is also about money. If Republican governor Scott Walker weren’t claiming that the state’s public workers were wildly overpaid, and if a lot of people weren't inclined to believe him, his proposal to crush the state's public employee unions wouldn’t be on the verge of becoming law.
As an empirical matter, Walker’s claim seems suspect. A new paper by the Economic Policy Institute breaks down the numbers and finds that Wisconsin’s public workers are, if anything, underpaid relative to their private sector counterparts. Of course, Walker and his allies insist that the real problem is not so much wages as health benefits and pensions. But the researcher who wrote the EPI paper, Jeffrey Keefe of Rutgers University, considers that possibility. Although public employees may pay less for some benefits--in particular, their health insurance typically comes with lower premiums and cost-sharing--he argues they still fare no better than their private sector counterparts when it comes to total compensation.
Here's how Keefe's results look graphically, courtesy of economics blogger Menzie Chinn (h/t Michael Tomasky):
Am I certain Keefe is right? No. Having spent some time reporting on public and private sector compensation before, I can tell you that there is a lot of disagreement over the proper way to adjust the raw compensation figures to account for variables like age, education, and so on. (The debate is as much philosophical as methodological: Some conservatives argue that public employers put an artificial premium on graduate education, effectively paying more for degrees that don’t make workers better qualified.) I haven’t seen a specific refutation of Keefe’s report on Wisconsin, but if you want to read an analysis that suggests public workers, in general, are over-compensated, Andrew Biggs of the American Enterprise Institute has done work along those lines--and has a new article in the Weekly Standard summarizing his views.
But I wonder if this whole debate misses the point. Suppose public workers really do make more than private sector workers. Who’s to say that the problem is public workers making too much, rather than private sector workers making too little?
For example, according to official Labor Department statistics cited in a recent National Affairs article, the average salary for a janitor working in government as of 2005 was $23,700, or around $26,700 in today’s dollars, while the average salary for a janitor working in the private sector was $19,800, or around $22,326 in today’s dollars. But does that mean the woman cleaning toilets at a county courthouse was making too much? Or that the one cleaning toilets at a corporate office was making too little? Or look more closely at teachers. They make much better money than janitors, for sure. But they also make less than their peers in other countries, at a time when supposedly everybody agrees we need to improve public education.
Of course, you could argue that it’s beyond the ability of any one employer, including a public employer, to single-handedly raise compensation for low- and medium-income Americans--that such a change would require wholesale shifts in economic policy and/or increased government activism. I would agree with that argument, just as I would agree with those who say unions can be short-sighted or selfish--and that, in the current fiscal climate, public employees must make concessions.
But, in the long run, we will never have an economy that distributes prosperity broadly without a strong labor movement. As Paul Krugman argues today,
You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years--which it has--that’s to an important extent due to the decline of private-sector unions.
Rest assured: American will only become even more oligarchic, and less democratic, if public employee unions decline, too.
Update: More on that EPI study from The Economist.
23 comments
Good piece of journalism. Well done.
- Nusholtz
February 21, 2011 at 1:45pm
Before surfing over to this article I had just been reminded by an article elsewhere that the 100th anniversary of the Triangle Shirtwaist Factory fire is quickly approaching. Presumably that world--employees locked in by management and unable to escape when the fire started, except by leaping to their deaths--is the dream world of the anti-union crowd.
- cspencef
February 21, 2011 at 2:29pm
If some public sector workers are overly compensated, it's at the highest, appointed levels, not the rank-and-file. Those who work directly for the politicians and who oversee the true worker bees. The qualifications in education and work experience one needs just to get an interview for most of those jobs are far in excess of what one would need to get a similar private sector job. I speak from 28+ years of experience in state government. Yes, it is harder to get those jobs and it's harder to get fired, too. But, there is a thing called due process which should be a right of all workers, not just those in the private sector. I had to fire many subordinates as a manager. It requires that you do your work as a manager.
- desertdog
February 21, 2011 at 2:37pm
Sorry, I meant to say "public" sector in sentence two of paragraph two.
- desertdog
February 21, 2011 at 3:57pm
It's fairly clear if you look at salaries alone, the public sector is not to be envied. So let's think about benefits. Thing is, I wonder about the methodologies of computing the cost of benefits when comparing private and public-sector compensation. I've often seen the public sector's insurance and pension benefits calculated based on what it would cost the private sector for equivalent benefits -- but surely this is the wrong way to do it. Public-sector unions get better benefits for their members because of economies of scale, not because they're extorting money from the taxpayer. This class-warfare attack on teachers for their allegedly unfair benefits is kind of like saying someone who went to Target or Walmart has somehow injured you personally if you paid more for the same stuff. Or, in other words, the problem is that private employees' benefits are too low, not that public employees' benefits are too high.
- frippo
February 21, 2011 at 7:59pm
Public sector union may get better healthcare insurance rates due to economies of scale, but the same can't be said for pensions. For the most part, public sector employees receive defined benefits pensions paid for entirely by their government employer. Most private sector employees, if they have any retirement plan at all, have defined contribution plans which are usually funded 50/50 by employee and employer. Economies of scale can't explain this fundamental difference in type of retirement plan because defined benefit plans are far more expensive than defined contribution plans not least because defined benefit plans retain the entire investment risk while individuals keep the investment risks in defined contribution plans. In general, public sector employees get much better retirement benefits than private sector employees. Arguments whether public benefits are too high vs private benefits too low misses the point. There's no moral (?) basis for any difference. Truth probably lies in the middle: public benefits are too high, private benefits are too low. My own personal peeve with these arguments is pensions at 20 years for firefighters and police vs extending the retirement age for manual laborers. IF retired firefighters and police have truly RETIRED, I have no problem with current arrangements. OTOH, if they find jobs in the private sector, should they get full pension and full salary? Maybe treating their pension income like Social Security treats earned income after drawing benefits would make sense in terms of leveling the differences between public and private. This would also cover retired manual laborers. If one has truly retired, then one draws full pension benefits. If one is still working but in another field, one draws partial pension benefits.
- hrlngrv
February 21, 2011 at 8:41pm
Don't forget the Hamlet, NC chicken processing plant fire in 1991, which killed 25 people behind locked factory doors in a mostly non-union state. State employees here have seen their health insurance benefits cut over the past several years, with increasing copayments, & deductables, and costs of insuring family members on their policies. Even if that janitor is making 26,700, paying 500 a month to insure family on the state employees' policy, and 20% of hospitalization costs in case of an illness or injury, that leaves her pretty close to the edge, and has effectively cut wages for people who've had no raises in a couple of years already. There have been unpaid furlough hours too. I imagine it's similar in other states.
- s.trabka@frontier.com-old
February 21, 2011 at 9:05pm
Unions in the private sector make complete sense and I totally support them, it's a fair fight between the business and the workers, but ultimately each side has to find its own way. What is the argument that public sector workers need unions? They work for the government, not some nefarious Mr. Burns, and ultimately if the government is treating them unfairly then they can quit and get a different job, or they can go to their legislator and make their case. But to threaten a strike or other actions is illegitimate. The government only has to provide the wages and benefits needed to fill the positions with qualified personnel, if it doesn't do that, it wont be able to fill the positions. People with fancy charts comparing public and private sector pay and benefits miss out on the most important aspect of public sector work, it is mostly without significant accountability, minimal risk of job loss or being fired, and very light work loads. Compare a asst district attorney with a private sector lawyer, or the hyperproductive employees on display at the DMV or the Post Office. Not exactly the Starbucks approach to customer service I would say. Everyone knows that public sector work is basically lower wages in exchange for much less stress and work and better pensions.
- nayyer_ali
February 21, 2011 at 9:38pm
Chait writes: "Suppose public workers really do make more than private sector workers. Who’s to say that the problem is public workers making too much, rather than private sector workers making too little?" Please. We pay our union fork lift drivers salary + benefits equally $70K per year. And teachers in Wisconsin are averaging salary + benefits over $100K year. And a doctor in France earns $55K per year. Yes, let's consider that perhaps we are paying everyone too little. Cohn, do a little think any tell us what would happen if everyone got a 50% raise. Or maybe even a 100% raise? yeah, that sounds sweet. Why can't we do that? Chait writes: "But they also make less than their peers in other countries, at a time when supposedly everybody agrees we need to improve public education. No, US workers don't make less than their peers in other countries. Teachers are retiring after a modest 30 year period of work with a massive $1.5M pension. What other jobs give this? They don't.
- seattleeng
February 22, 2011 at 1:28am
Seattle you are misinformed. Or worse - I don't understand why you keep shoveling this $100,000 average teacher salary business - the average is about $43,000 - so???? http://teacherportal.com/salary/Wisconsin-teacher-salary
- Sophia
February 22, 2011 at 1:30am
Seattle plus show me this $100K figure and how you come up with it? Plus, when you are talking a doctor's salary in France - are you including his/her benefits too? PROBABLY NOT right? especially considering the excellent overall benefits afforded to ALL workers in France - sheese. I don't get it. Why do you hate these teachers so much?
- Sophia
February 22, 2011 at 1:32am
As to the assertion that teachers and other public employees have "light work loads," this just isn't true! Show me where you guys come up with this stuff? Teachers work pretty long hours - it's not just the time they're at school - it's preparation time, administrative work, studying themselves, grading papers - and government lawyers - ditto - I don't get it.
- Sophia
February 22, 2011 at 1:35am
Read this you guys, who are so ignorant, read all the comments BY teachers - and stop beating them up: http://teacherportal.com/teacher-salaries-by-state By the way - where would we be without teachers? It also totally amazes me that "conservatives" especially well off ones who don't want to pay taxes are the first to whine about "the politics of envy" then go absolutely nuts when some union members are found to have negotiated decent benefits for themselves. Talk about envy -
- Sophia
February 22, 2011 at 1:52am
Seattle, to be fair, is using the salary PLUS BENEFITS number that keeps coming up during coverage of Wisconsin. My question is how the benefits are calculated. (Thing is, though, lots of people think that they heard on Fox that WI teachers make a SALARY of 100K, and I'm sure few on the right are bothering to correct them.) And yeah, I wondered what his point about French teachers was, too, and was surprised to see it not include benefits. (Surely it can't be that benefits aren't a problem of envy if they're nation-wide, cut across careers, and are publicly funded? If so, well, we know what to do, then...)
- frippo
February 22, 2011 at 8:49am
(Public sector) unions probably wouldn't even be under attack today (or at least not as viciously) if the country only had national/public health insurance. It always comes back to health insurance, doesn't it?
- Claris
February 22, 2011 at 9:50am
Yes, frippo has it. Salary + benefits. Here is the real worry the states have. A person graduates college at 22, and then can retire after 30 years of service (35 in some states, 25 in others). In 30 years, the average life span will be 82. Which means for 30 years of service you pay someone a pension + golden health benefits for 30 more years. Now, that pension is usually figured by their last few years of work. So take a teacher today that is making 80 or $90K when they retire. They will see a pension of $60K per year + great health benefits ($20K a year) for 30 years. The value of that pension is: $80K * 30 = $2.4M. Now, you don't have to put that much aside becuase interest will help get your there. Today, to get that $2.4M you'll have to stick aside $1.5M on the day that person retires to pay that $2.4M. OK, so if I work 30 years for a $1.5M pension, then how much per year was that worth? $1.5M/30 = $50K roughly. And then you have a teacher salary of $50K, and then a $20K health care plan. That is how a teacher making $50K per year retires almost a multimillionare at the age of 52 and makes over $100K/year in salary + benefits. The math is quite simple.
- seattleeng
February 22, 2011 at 10:50am
Sophia writes: "Plus, when you are talking a doctor's salary in France - are you including his/her benefits to" Yes. DSimon recommended a really good book that I got on Kindle. It has doctors salaries for all over the world. Doctors in France make $55K per year (similar to doctors in Japan). Not sure what benefits they get, aside from free health care. But it's a little different there. Medical school cost them almost nothing, and they have no malpractice costs. A doctor in the US will have almost $100K in malpractice insurance costs alone. As I've noted before, there is no way we can just take another health care system and make it work here. Think about it...doctors in France and Japan (that have 12+ years of school under their belt) make less than union forklift drivers in the US (that probably have 2 weeks of training under their belt). Once you understand that, you begin to understand a lot of things... Making another countries health care plan work will require our doctors salary's to be cut a lot....and that means fork lift drivers and teachers salary will be cut a lot too....
- seattleeng
February 22, 2011 at 10:57am
"Doctors in France make $55K per year (similar to doctors in Japan). Not sure what benefits they get, aside from free health care. But it's a little different there. Medical school cost them almost nothing, and they have no malpractice costs." So until you have the numbers then you can't make an equivocal comparison of a teacher's salary of $40K plus some magical number of $60K in benefits to come up with a $100K salary to that of a French doctor making $55K a year and not include his/her benefits. If we include the free medical coverage, retirement benefits, French SS, and the practically 'free' medical schooling the French doctor makes out pretty well considering he doesn't leave school with a $200K loan debt. I have an ex-MIL (retired after 30 years) that taught and didn't make $100K including benefits. She also didn't retire as a multi-millionaire. The skewing of math (by adding up the total benefits per year over the life of retirement) leads one to "think" that the retiree is a multi-millionaire at time of retiring. Which isn't the case. My father retired at 60 after 30 years of working for the city with a pension of $350K which is supposed to last him the next 20 years. His extended medical benefits were reduced (which is also deducted from his monthly pension check) once he hit the mandatory enrollment for Medicare. I suppose he's living the life of a millionaire if I include his Social Security check. But "retiring" on $45K a year doesn't sound like a multi-millionaire to me.
- singlspeed
February 22, 2011 at 12:06pm
That 55K for French doctors (and see below on correcting that number) is reported in Business Week as net income -- salary in hand. It certainly does not include, for example, the social security tax benefit (the French government pays 2/3 of the tax for physicians; Business Week says that tax can be 40% of income). And surely the effect of the lack of student loans and low malpractice insurance must be calculated and included when comparing salaries, not mentioned and ignored. It seems odd to require us to count benefits for American teachers but not those for the French because the systems are too different -- I thought the whole problem was that private and public employees in the US are operating under very different systems. Where does your estimate of a 20K/year health plan come from? By comparison to its value in the private sector? If so, see my comment above. As for French doctors, it's trivial to find actual French sources saying that a general practitioner receives an average annual net income of about 74K EUROS, and surgeons and specialists much higher, and that this is not the whole story as regards their remuneration. (These are numbers from the last few years.) Finally, though, I'm still not sure what Seattle's point about French salaries even IS, if we're talking about the effects of unions on pay. Pretty much everyone in France is unionized, after all. And a lot of people who talk about the relatively low pay for French doctors cite it as a benefit of a universal healthcare system -- keeping medical costs down. But I'm pretty sure that's not what Seattle is on about. This got too long; sorry. Links: 55K figure: http://www.businessweek.com/magazine/content/07_28/b4042070.htm 74K figure (pointing out that it's only just over half their annual receipts): http://www.journaldunet.com/economie/magazine/salaires-des-professions-liberales/salaire-generaliste.shtml (in French) Comparison to other kinds of doctors: http://www.viva.presse.fr/Remuneration-des-medecins-de_11428.html (in French)
- frippo
February 22, 2011 at 12:54pm
I'd certainly amend my understanding if someone has the data. But we aren't counting our (US) social security in the salary for teachers either. In other words, the benefits I am counting for teachers are available ONLY to teachers, not the broad population. But the bizweek article notes the French gov pays 2/3 of social security taxes for "most" french physicians, and that the tax is 40% of their salary. So that means 55K * 1.4 = ~75K. Still, quite a bit less than a teacher salary + benefits, and quite a lot more school, too. But, it does mean the salary + benefits of a french doctor is just a bit better than the salary and benefits of a union forklift driver. Again, understand that you you understand a lot of the problem we're facing. Frippo, since you ask, my point is this: Cohn wonders (cluelessly, I might add) why can can't just pay everyone more. The fact, is, we already ARE paying people more. A lot more for doing the same job and those in other countries. if our teachers are making more than french doctors and the data shows they are, then it should be clear why our health care costs so much more than the rest of the world, and why our pensions are broke.
- seattleeng
February 23, 2011 at 12:38am
Singlespeed writes: "o until you have the numbers then you can't make an equivocal comparison of a teacher's salary of $40K plus some magical number of $60K in benefits to come up with a $100K salary to that of a French doctor making $55K a year and not include his/her benefits. " You need to read a bit more. Search on "Wisconsin Educators Teach Poor Lesson" with quotes and read the first article. Milwaukee public school teachers average $56.5K in salary, and $43.5 in benefits. That's over $100K. The average teacher salary in WI was $46.3 in 2009, and in 2012 that hit $53K. More than a 10% raise in a year that everyone else suffered. Adn BTW, 1/3 of students in WI don't graduate. Administrators in WI earn over $200K/year including benefits. Are you really defending all this crap? You might have a point if we had the best education system in the world. But our education system is worse than our healthcare. Our healthcare system fails about 8% of our population each year (no insurance and can't afford it). Our education system is failing almost half of the popultion (in that 12th graders that do graduate can't even do 8th grade math). You think these educators are doing a good job????
- seattleeng
February 23, 2011 at 12:53am
seattle... I'm still trying to understand how a teacher's salary directly determines the health care costs in US and pay rate of doctors in the U.S. The inherent complexities of a hospital system, increased costs of technology upgrades, overpaid sales & marketing forces, and the overwhelming administrative costs associated with health care have a bigger impact on health care costs than a 3rd grade teacher's $40K salary. First year medical residences make a $46K+ salary depending on their discipline. That pay steps up each year of residency. 3rd year resident makes $50+ (practically a 10% raise) A teacher, having taught perhaps 15 years, would or should make more than a first year teacher. I have a cousin-in-law in his second year teaching 5th grade science and he's probably making $35K a year. I have a sister-in-law that is a 2nd year resident in peds and is making over $50K salary. Again, her pay scale has nothing to do with her cousin's teacher salary. You're arguing that because the teachers, apparently all overpaid, should be paid less with less benefits because students fail to graduate and because French doctors only make $72K. The French doctor's salary should be compared to a US. doctor's salary. Are there under-educated/ineffectual teachers? Sure just as there are under-trained/ineffectual doctors. So if we're going to make comparisons let's do so. If you want to be fair, compare apples to apples. French teacher to US teacher after 15 years of teaching. http://economix.blogs.nytimes.com/2009/09/09/teacher-pay-around-the-world/ But it looks like Germany and Korea pay more for their teachers and they have higher performing education systems. The French doctor's salary is also closely linked to their training & education costs just as they are here in the States. http://economix.blogs.nytimes.com/2009/07/15/how-much-do-doctors-in-other-countries-make/ http://www.kevinmd.com/blog/2009/11/training-doctor-france-differs-united-states.html But I know a lot of young teachers here in the New Orleans school system (which is now 90% charter schools) who aren't making tons of money, yet have a lot of passion for their job and try to teach kids that statistically may not graduate because of many reasons, and come into the school system behind the learning curve before they even have a chance. Cutting teacher salaries won't improve that situation nor will giving everyone raises fix it either. I agree the system(s) need fixing but gutting the capacity for unions to collectively bargain ala Gov. Walker doesn't fix the system(s) either. The non-union people argue the market will reward the system & employees if we just get rid of unions but I've yet to see that happen. If anything I'd say the "right-to-work" movement tends to speed up the race to the bottom when it comes to incentivizing performance unless the perpetual fear of losing one's job to cheaper labor counts as a positive incentive.
- singlspeed
February 23, 2011 at 12:24pm
Singlespeed, I am not arguing we cut or even hold teachers salaries constant. I am simply arguing that a determinant of salary must be tied to the difficulty of the job AND the number of people willing to do the job. If we pay trash collectors and doctors $200,000, then nobody will become a doctor. There must be a reward for earning nothing from the ages of 18 to 32, and for putting yourself through a rigorous academic program will your peers do things that are more fun. You can argue all you want about how difficult it is to be a teacher. But at the end of the day, there is a long list of people wanting to teach. There must be something appealing about the job and the salary + benefits. Otherwise there wouldn't be a long list willing to go through all that. That is what is great about the free market. It sorts all this out for you. People vote with their feet for what is fair and what is not. Unions do not allow this process to happen, and as a result we get distortions such as we are seeign now, where union forklift drivers in the US make more than even doctors in other countries. it's funny, but people in the US often celebrate the $70K forklift driver ("good for him!") but then they expect the doctor to take a huge cut and to work at medicare wages so that our overall health costs come down. But this has the same effect of compressing the salary difference between highly skilled and highly unskilled jobs, with the impact being fewer and fewer are willing to earn the training need to do the really hard jobs.
- seattleeng
February 23, 2011 at 2:48pm