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Home Publications Blogs Beat the Press The Washington Post Has Different Definitions of "Too Much" for Public Workers and Wealthy People

The Washington Post Has Different Definitions of "Too Much" for Public Workers and Wealthy People

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Tuesday, 19 April 2011 08:25

The Washington Post told readers that the battle over pay for public sector employees, "comes down to a matter of perception over what qualifies as modest and what is too much."

This is not true. Many of the people who are advocating cuts in compensation for public employees support much larger pay packages in other contexts. For example, the overwhelming majority of public employees earn less than $100,000 and can only start collecting full pensions after 30 years of work.

By contrast, many Wall Street executives earn well over a million a year and can often walk away with multi-million dollar packages while still in their 50s or even 40s. Few of the people who have been at the forefront in protesting generous pay packages for public sector workers have been complaining about Wall Street pay. They have not even been bothered by high pay at banks that get government subsidies in the form of "too big to fail" insurance.

For another example, the economists at the IMF can often retire with 6-figure pensions in their early 50s. The IMF has been at the forefront in demanding that governments raise their retirement ages and reduce the generosity of benefits.

The question is absolutely not "what qualifies as modest and what is too much." This is entirely a question of how much mid-level and lower level public sector employees should earn relative to other actors in the economy. Many of those who earn far more than these public sector employees want to see their pay cut.

Comments (11)Add Comment
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written by foosion, April 19, 2011 9:18
Typical story lines: Public employees are lavishly compensated at $50,000. Private workers are barely scrapping by at $250,000.

Those earning a lot tend to have bigger megaphones than the public employees.
Not Too Little, Not Too Much: Optimize Public Pay With Private Pay
written by izzatzo, April 19, 2011 10:02
The question is absolutely not "what qualifies as modest and what is too much."


This from a so called 'economist'? Are you daft? Have you lost sight of optimization principles? The ones that determine exactly where marginal cost of a public or private worker equals marginal benefit?

How do you think those in the private sector earned their millions in the first place to be taxed and fund public workers? It was obviously because their output returns don't diminish as fast as those of a public worker.

They're paid more because they're worth more, just like public workers are paid less because they're worth less.

This is not one of those fairy tale tautologies about the soup being too hot or too cold or just right. This is the real world where the rubber of added private value meets the road of subtracted public value to determine optimal total value.

Stupid liberals.
izzatzo may be missing the point
written by Dom, April 19, 2011 10:45
Please use critical thinking.
Bailouts = Your Tax Dollars
written by CUW, April 19, 2011 11:03
@Izzatzo -- so because the CEOs of America's financial institutions, who led the economy into a tailspin and screwed over their customers, are "worth more" then our tax dollars should contribute to their billion dollar salaries and bonuses?
The same institutions who got federal bailouts provided bonuses to their employees. If they needed bailouts to keep treading water, why are their employees worth more than public employees? What are they doing that is worthwhile, exactly?
...
written by ed ericson, April 19, 2011 11:20
A good bank robber or drug dealer can take home tens of thousands per day, whereas a bank teller or cop only makes a couple hundred. Ergo, the bank robber and the drug dealer are, as Izzy says above, "paid more because they're worth more, just like public workers are paid less because they're worth less."

Surely any economist (who is not a stupid liberal) can see the logic in this.
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written by liberal, April 19, 2011 1:34
Uh, guys, Izzatzo writes spoof.
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written by Bill H, April 19, 2011 2:01
I think the issue of where the money comes from is a factor in the discussion, one which you conveniently omit.

The bank officer's salary comes from the bank's customers, and is a person doesn't like contributing to that salary he can go to a different bank. There are plenty of credit unions which do not pay their executives that kind of money.

The public workers' salary comes from taxes, and if the taxpayer doesn't like that he cannot opt out of taxes, and moving to a different location constitutes a major upheaval.
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written by Bill G., April 20, 2011 8:49
I don't think where the money comes from is a factor at all provided its not coming from business equity. If some guy has a great idea and starts a business then he should be entitled to whatever his profits end up being but if you're on salary then your qualifications should be evaluated against everyone else with those same qualifications to determine if you're overpaid or not.

As far as overpaid bankers versus overpaid government employees we have to really consider what goes into getting these jobs. A government engineer shouldn't make more or less than an engineer in the private sector. A wall street banker shouldn't make more or less than some guy with a finance degree originating mortgages at the local bank. And lets be honest, finance isn't really the toughest major in college so these guys should really not be making any more than anyone else with a moderately difficult major like biologists or something.

The government should use its leverage to make sure its employees are not overpaid but it should also use its leverage to make sure that the employees of the businesses its bailing out (banks and car companies) are not overpaid. When the FDIC bails out an account holder of a failed bank they only guarantee him his principal (not his interest) with the rationalle that the bank was probably paying above average interest rates and that caused them to fail. The same rule should be applied to bank employee compensation. If they're going to bail the bank out then give every banker no more than they'd get as a federal employee. Anything more should be considered a contributory factor in the failing and eliminated as soon as the bailout is paid.
Public Employee Contributions
written by Jeff Z, April 20, 2011 9:10
@ Bill H,

Largely we pay taxes to fund projects that the private sector can not profit from because the benefits can not be easily privatized. That is why we have police protection, fire protection, and national defense as state funded endeavors. These are public goods, so markets fail to provide them sufficiently.

A similar effect occurs when you deal with goods that have large external benefits like health care, education, basic scientific research, and transportation infrastructure. The benefits of these activities leak out beyond the market participants if the market was the mechanism that we were using to obtain these services.

At best, we have an indirect measure of the value of these services to the population - the taxes we pay to obtain them. The benefits are shared by the public for which they do not pay a direct price at the point of service. But the benefits of a well functioning education system include both a workforce that is more productive than otherwise, and a population that is usually less prone to commit crimes. This is especially true when you can combine education with employment opportunities.

Finance has these kinds of external benefits and costs. The recent economic and financial crisis demonstrates the public good aspect of money and finance. It also reminds us that their status should be that of a largely intermediate good used in production of other goods. The incentives in place in the financial industry led to increased costs for the rest of us, reflected in the ridiculous bonuses paid to many financial industry executives. The money paid to executives also come from somewhere. Everything, not just government spending, has opportunity costs. There ain't no such thing as a free lunch! (TANSTAAFL, Baby!)

If you really want to live where there is a minimal government, may I suggest Haiti or Mexico. You can freely contract with the gang or narco-trafficker of your choice for "police" protection from rival gangs.
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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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