February 17, 2011
Analogy Watch: "Cairo has come to Wisconsin"?
Day 3 in the Wisconsin State capitol rotunda. Source: Milwaukee Sentinel Journal
From National Journal:
In an interview on MSNBC's Morning Joe today, Rep. Paul Ryan, R-Wis., said the cuts were necessary to get Wisconsin back in the black.
"State workers who have extremely generous benefits packages, [Walker’s] asking that they contribute 12 percent to their health care packages. It’s not a lot, it’s about half of what private-sector employees pay, and he’s getting riots. It’s like Cairo has come to Wisconsin,” Ryan said. “People should be able to express their way, but we’ve got to get this deficit and debt under control in Madison."
Frankly speaking, I'm not sure that's the most apt analogy. In any case, here is one graph of wages, broken down by educational attainment, in private versus public sector, using BLS data and the CPS, from a study by Keefe (2011) [edit added 2/25/2011].
Figure 1: Annual wage for full time employees, by level of education attainment, in private sector (blue) and public sector (red). Source: Keefe (2011).
Notice that the wage differential is small, and in fact goes in the opposite direction of what is often asserted (except for the less-than-high school category). However, these data do not address the issue of compensation. Hence, Figure 2 replicates the comparison, using total compensation. The pattern is repeated.
Figure 2: Annual total compensation for full time employees, by level of education attainment, in private sector (blue) and public sector (red). Source: Keefe (2011).
Using the March 2010 CPS data, regression analysis controlling demographic characteristics (full-time, education, years of economic experience, gender, race, citizenship, and organizational size) confirms that total hourly compensation for Wisconsin public sector workers is 4.8% lower than for private sector (-5.1% for Wisconsin State workers, and -4.7% for local government). The differentials are bigger for annual compensation. These estimated differentials are statistically significant, as shown in Table 4.
Table 4 from Keefe (2011).
Posted by Menzie Chinn at February 17, 2011 09:10 AMdigg this | reddit
So let me see if I get this right. The jobs are so unattractive that they have a hard time finding people to fill them. There couldn't be any other non-monetary reasons that people would find these jobs attractive, could there?
Posted by: Rich Berger at February 17, 2011 09:27 AM
I always thought the reason Wisconsin public employees earned less was because the state was in such a fiscal mess. If the public sector contributed to the mess, the causation goes from pubic-employee-caused-fiscal-mess to lower compensation growth. Not sure if that is true, but somthing to consider.
Posted by: tj at February 17, 2011 09:31 AM
If public union workers are so underpaid, why is there no shortage of them and why do they rarely leave for the private sector?
Somebody is ignoring some pretty important variables here, I think.
Posted by: W.C. Varones at February 17, 2011 09:32 AM
Again, we are measuring inputs, not outputs. This is cost analysis, not cost-benefit analysis.
I have a friend who runs a group that collects certain information for NJ state government. He is a government employee, and this is what he said: "I have 100 employees, and 20 of them are worth something." If he could release 80% of his employees, raise wages for the rest, and hire in 10 more really good people, I would bet he'd do that.
But he can't, and that's the heart of the issue, not wages per se. This also implies that, with at will employment, the wages of state employees would rise, and their off balance sheet benefits would fall. From an expenditure point of view, you'd probably end up with fewer, better paid employees and more technology.
Posted by: Steven Kopits at February 17, 2011 09:35 AM
I assume this means that Rep Paul Ryan is going to give up his generous congressional salary (and benefits) so he can do the people's work for minimum wage?!?
What utter hypocrisy.
Posted by: Raskolnikov at February 17, 2011 10:00 AM
The private-public compensation differences can presumably be explained by greater job security and easier working conditions for government employees. The point, though, is that the pension and other components of the government pay package were a part of what induced people to enter government service. There's nothing to say that relative pay between government and private sectors can't change, but reneging on longer term aspects of the employment contract would be unfair to long-time government employees. For example, to eliminate a tax exemption for state pensions would break the contracts ex-post and amount to a 'taking' from the public sector retirees who presumably used the benefit to calculate the pay needed to get them to accept government employment.
The popular notion that government unions gouged taxpayers with overly rich pensions and other benefits is probably misplaced, although unions probably made government work easier and jobs more secure. More likely what happened is that elected officials with short time horizons used more generous pensions to get cheaper labor in the short term, failed to properly fund the benefits and now want to renege on the agreement.
Short time horizons of elected officials are the bane of democracy, but the way our Fed conducts its operations demonstrates that 'independent' officers in term appointments made by elected officials are no solution either.
Posted by: don at February 17, 2011 10:16 AM
I have a question about the data presented. How is that private is larger than public in all the categories except less than HS, and yet the average wage differentials are either the same or slightly in favor of public?
Posted by: Jeff at February 17, 2011 10:47 AM
Stephen Kopits makes a smart point but he seems to be implying that this does not apply to the private sector as well.
The comment from his friend would be repeated far and wide by people in the private workforce about private employees.
Posted by: jay22 at February 17, 2011 11:11 AM
Note also that the "fiscal crisis" is entirely of Gov. Walker's own making:
This is out-and-out union busting, and every person who voted for Walker should be embarrassed they elected a 19th-century throwback.
Posted by: Matt at February 17, 2011 11:51 AM
Great post--how about this analogy:
"Scott Walker Compared to Mubarak in Showdown With Wisconsin Public Workers"
In addition, does the Keefe study control for hours worked in full-time private and public jobs even if the number of weeks worked is the same?
What about the fact that some professions (i.e. high school teachers and college professors) are paid for 8-9 months of work? Is that controlled for?
What about the fact that job security is higher in the public sector? Is that monetized?
Posted by: economist at February 17, 2011 11:59 AM
If you are right, then the voters will turn on Walker. I suspect that you are not. I think the WI teachers' unions are making a mistake and they will not get sympathy from the voters. This same drama played out in NJ where I live. The teachers' unions cursed Christie, wrote angry letters to the editor, and generally threw a tantrum. In the end, they failed, and the Democrat legislature sided with Christie (they could read polls).
Many teachers have a chip on their shoulder, because they think the taxpayers don't appreciate them. This grudge is reflected in their shenanigans. It's not working.
Posted by: Rich Berger at February 17, 2011 12:20 PM
@Jeff: Good question. It's a weighted average. The BLS would be proud.
Posted by: Satish at February 17, 2011 12:50 PM
@Jeff: In other words imagine the extreme case that 99% of public workers have Doctorates and 99% of private workers have Bachelor's. Then the All category would put the Public above Private even if Private beats Public in each subcategory.
Posted by: Anonymous at February 17, 2011 12:59 PM
how can you look at wages, excluding the pension and health cost/benefit which are the heart of this disagreement?
Posted by: js at February 17, 2011 01:16 PM
What is the quit rate of public sector versus private sector employees?
Posted by: BL at February 17, 2011 01:32 PM
So the all category doesn't control for differences in education? That seems like a rather meaningless statistics.
@Anonymous-what if a doctorate_public earned less than a bachelor_private?
Posted by: Jeff at February 17, 2011 02:26 PM
Jeff: That is what Table 4 is for.
Posted by: Menzie Chinn at February 17, 2011 02:33 PM
Some of the people here have extremely short memories. In the current economic environment public sector jobs are very attractive relative to private sector jobs. That's because people put a premium on security. But it wasn't always thus. Back in the 1990s the quit rate for public sector employees was MUCH higher than it was for private sector employees. I work for the federal government and we'd send recruiters out to job fairs and the recruiters were lucky to get a nibble. The government had to increase pay and emphasize job security in order to attract people into the government. But voters aren't known for their long memories, and it appears that many of the posters here are just as clueless. Don has it exactly right. Politicians promised long term security in exchange for job security. And Menzie's charts show exactly that. Politicians did so because it was an easy way to increase the govt services that voters were demanding without having to pony up higher wages. But now that things have gone south those politicians and voters have selective amnesia and are looking for ways to renege on their earlier deals. In other words, they are essentially defaulting on agreements...but they also try to put lipstick on the pig by calling it "fiscally responsible."
And the belief that govt workers can never be fired is a myth. Federal employees are not fired in the usual way that private sector employees understand. In other words, the boss doesn't call you into the office and say "You're fired, clear out your desk." The usual procedure is to charge the employee with a crime...and these are only crimes that apply to govt employees. People would be surprised at just how few rights federal govt workers actually have. For example, a federal employee cannot even legally quit or retire from their job without govt approval. That's actually how Reagan sent the PATCO guys to prison. Their crime wasn't that they tried to strike (they didn't); their crime was that they all quit their jobs without first getting govt approval. I know quite a few folks that were prohibited from quitting or retiring under pain of going to Ft Leavenworth. That's not something that private sector employees have to worry about.
Posted by: 2slugbaits at February 17, 2011 03:00 PM
The solution to possible inequities between public and private would be to raise private sector wages and more easily allow unions.
But the goal of the legislation is to allow plutocrats to dodge taxes and destroy working standards.
Posted by: purple at February 17, 2011 04:08 PM
could someone explain to me how the ALL category can be even when the rest of the categories except 'less than HS' show a disparity?
I could see if it was weighted by number of employees with less than HS was a very large number, but I doubt it's larger than the HS or College categories.
Posted by: iasm at February 17, 2011 05:19 PM
iasm poses a good question.
What is the source of the stats that assert that total compensation of gov't employees averages significantly higher than that of non-gov't employees?
Posted by: Bryce at February 17, 2011 06:10 PM
Re: Firing Civil Servants
You can be assigned a job in a location that you don't want to go to. I think that is what the FBI used to do. Maybe still do it.
If a person is too scarred/lazy to organize his work place then maybe he deserves crappy retirement, benefits and working conditions?
Posted by: dilbert dogbert at February 17, 2011 07:11 PM
The teacher's "strike" in Madison is as much a watershed event as was the PATCO strike President Reagan broke in 1981. This event will reverberate across the nation with major consequences, and history will look back at this as the high-water mark for public sector employees whose productivity measured by student test scores does not warrant their compensation.
This event unfolds in the larger context of what is really going on in this country. A vast swath of ordinary Americans are finally fed up with the nation's decline and are doing something about it at the voting booth. The Tea Party movement is one of many concrete manifestations of this change now upon us. Ordinary hard-working people in the private sector perceive their tax dollars misused and are turning the levers of change. They are enabled by the same new communication technology as were the people demonstrating in Tunis and Cairo. Formerly only elites had access to knowledge, the priesthoods of academia, press, and politics. That is all changing now in a way similar to the change that swept Europe after Gutenberg invented the printing press. The wave of revolt against tyranny in the Middle East and the sea change underway here in the US against "tyranny" -- the most egregious being the Federal government's ever-greater intrusion into privates lives and pocketbooks -- are part of a larger organic whole. And events will move far more swiftly today with the instantaneity of the technology and massive new access to knowledge that this technology provides.
The comments to opinion pieces in the mainstream press by mostly politically biased writers, and the comments on blog sites like this, are often more insightful about real world matters than the original provoking article. Naturally enough, for there is no monopoly on creative insight. All people have it, it is our inheritance as humans. The thing that has changed is mass access by everyone to the store of knowledge that is exponentially growing. No longer is knowledge the restricted privilege of inbred schools such as that of economics which could not even see the financial crisis of 2008 coming. Moreover, Egypt and Tunisia inform us that this technological revolution also enables new forms of organization and networking amongst the broad public, where by the laws of evolution it is predictable that many creative new ideas are going to populate the niches and crowd out the many bad ideas that currently reign.
In a nutshell, power is devolving back to the people and competition in the marketplace for ideas has only now in the scope of history finally at long last truly begun.
Posted by: JBH at February 17, 2011 08:14 PM
Lemme get this straight JBH: the tea party is reclaiming the nation for the ordinary people, and to do this, they intend to tear down the wages and workplace power of millions of other ordinary people.
Great plan Einstein.
Posted by: McMike at February 17, 2011 09:16 PM
You've got that right. Apparently Tennessee is folllowing WI's lead.
Posted by: Rich Berger at February 18, 2011 12:22 AM
Calling in sick when you're not really sick is a lie. It is a violation of trust.
sarcasm mode on I like the signs... Comparing Gov. Walker to Hitler. sarcasm mode off
Not only are those who carry such signs despicable they do not know history.
I'd have guessed teachers would know better... No wonder the state of education is in such dire straights in this country.
Posted by: Babinich at February 18, 2011 02:56 AM
McMike, I don't read JDH's comment as holding up the Tea Party as the model for change. But they certainly are one of the "fed up" groups.
Posted by: Donal at February 18, 2011 05:21 AM
Menzie, putting aside rhetoric and distortion, there are real questions. For example:
1. Should a state or locality be providing health care?
2. Should a state or locality be providing health care to retirees?
3. Should state and local government employees be excluded - as they tend to be - from social security?
To take just these 3 real questions, consider that if it's too expensive for state and local government to fund health coverage then the question becomes what else is possible? If the choice is to force them to buy private insurance, then who would want to work for the government, especially if you're exposed to market risk when you're older? That then asks why we expect companies in general to provide health coverage and that then leads to replacing the current system with actual universal coverage.
I phrase it like this to point out that the debate on health care doesn't end no matter how things go over the next few years. If we don't have the current law, I would expect more pressure, not less for universal coverage as more people lose employer coverage and as it becomes more expensive to families. The alternative is the Ryan idea in which we simply move the risk of illness to the individual and let them either bankrupt themselves or die.
As for pensions, some of the perception problem arises because the state must fund the full amount of the pensions. They receive contributions from employees but they tend to underfund, often dramatically. In Illinois, for example, a teacher pension averages about $15-20k over social security - the higher end assumes not receiving maximum social security. That doesn't look as generous but the state has to fund the full $40k+ and that looks egregious.
Posted by: jonathan at February 18, 2011 08:08 AM
Donal and others: Just to prevent confusion, JBH at Feb 17, 8:14PM is not JDH (James Hamilton).
Posted by: Menzie Chinn at February 18, 2011 09:06 AM
Not only Wisconsin will see this. Just natural development of too much exuberance.
Posted by: Ivars at February 18, 2011 09:11 AM
This is inherently a hard comparison to make. Two examples:
* Did you get all the fringe benefits, retirement terms etc right? In my town, retirement and health benefits are much better in the public sector, but it takes some work and judgment to price them out.
* Are the jobs the same? We all know colleagues who (say) didn't get tenure, went to Wall St, and now make much more than we do as professors. But we're doing different jobs. Many of them would never have left if given the choice, so it can't be simply a matter of money.
Posted by: Dave Backus @ NYU at February 18, 2011 10:57 AM
Dave Backus @ NYU: Absolutely correct. There are undoubtedly measurement errors in this data set. In addition, the basic economic issue is one of compensating differentials; if the labor market were perfectly competitive, any differential must be economically efficient. I'm not a labor economist, but my limited reading of the literature indicates that a perfectly competitive (perfect information) characterization is not the most apt.
In an econometric context, one would say that there are some unobservables that might be biasing the results; that's why (I think) the differences-in-differences approach is so often used in the labor field. But I didn't have access to such a study, so am relying upon this. In other words, I'm saying citing some numbers (that I understand both the advantages and disadvantages) is better than citing none at all.
Posted by: Menzie Chinn at February 18, 2011 11:28 AM
You've got that right. Apparently Tennessee is folllowing WI's lead.
Posted by: Jocuri at February 18, 2011 12:30 PM
Instead of lumping all people with the same degree into categories and comparing them, it would be better to compare workers by profession. A person with a masters in finance will likely make more than a person with a masters in education. If the private sector employs more masters of finance, then that would explain the Professor's data. Here is one article on public/private pay differences by profession. http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm#chart
Posted by: Jeff K at February 18, 2011 12:56 PM
Demanding money when none is avaliable seems a bit like robbing a closed bank. Within any state the only legal money is silver and gold coin, of which there is presently none. See U.S. Constitution, Article 10, sect 1.
Posted by: Louis L. Rabalais at February 18, 2011 01:57 PM
How many of those state employees in the figures are teachers? Considering teachers are only in the classroom from Sept-June, even if their pay is on-par with private sector counterparts, I don't get a paid summer vacation.
Posted by: brewcrew at February 18, 2011 03:25 PM
I have long understood that people working in the publi sector accepted lower wages in exchange for higher benefits and security.
It is wrong to penalize these people because the structure of the contract fails to make that explicit. For example the contract wages could have been higer, but deductions for the good benefits could have been higher. Then for the same total compensation it would be clear that the workers were "paying" for their benefits.
Also from a purely economic standpoint. If not passing this legislation means layoffs of some public sectors workers that is probably a better outcome. If the state/county/school district/ municipality can't or won't pay decent wages for a given activity, the government should probably just stop doing whatever that is. The saving to the public would be greater, government would conentrate on the essential functions of government.
Posted by: heyyou! at February 18, 2011 04:32 PM
I understand the scare. This puts claim that Obama and Fed plans will create employment soon under tremendous pressure, as private sector adding jobs will be more than compensated by municipal, state and federal jobs lost., as was obvious from the beginning. They will create a huge shake-up, that is for sure.
That is why democrats decry actions that tries to move other budgets , as well as federal, back into some shape. Obama needs 2 more years of job creation, if any, than he may try to get second term, however unlikely. All the rest does not interest him, nor his team.
Posted by: Ivars at February 18, 2011 10:52 PM
When Gabrielle Giffords was shot the media searched hours of video footage to find it and went public with the claim that Sarah Palin and the Tea Party had signs of hate targeting her. Democrats were in the news claiming it. America's Havenstein, Paul Krugman, was the first to post about Sarah Palin and Tea Party hate.
In Wisconsin you don't have to search very far, but has it been on the news or has our "Havenstein" written about it?
Posted by: Ricardo at February 19, 2011 05:48 AM
Yes, I agree. Comparing Gov Walker to Hitler or Mussoline or Mubarak is clearly over the top. A better comparison would be Gen. Jarulzelski.
Posted by: 2slugbaits at February 19, 2011 12:58 PM
"That is why democrats decry actions that tries to move other budgets , as well as federal, back into some shape. Obama needs 2 more years of job creation, if any, than he may try to get second term, however unlikely. All the rest does not interest him, nor his team."
Where were you when the DoD budget skyrocketed to 700 billion per year while extra discretionary items were added to the budget to pay for Iraq?
Posted by: Dennis at February 19, 2011 10:25 PM
Rich Berger wrote: "The jobs are so unattractive that they have a hard time finding people to fill them."
I know you menat to be sarcastic with that comment, but you might be surprised to find some truth to that. I am a public sector IT professional in Wisconsin, and two years ago when we needed to fill two positions in my department we had to go through three recruitments before we could find qualified candidates, raising the salary each time until they were above the wages most of we existing employees make. Even then, it soon became clear that the two guys we hired probably took the jobs more as "safe harbor from passing economic storms" than because they were excitied about the jobs. Two years later, both have already left for higher pay elsewhere, and we are back to running recruitments hoping lightning strikes. In the corrent political environment though, I don't know why anyone in their right mind would choose to take this job, if they have any compensation expectations. Indeed the opposite is happening, a lot of us long term employees are updating our resumes & putting them on careerbuilder.
Posted by: Mark at February 20, 2011 10:28 AM
So let's see: You make teaching into an insecure and very poorly compensated job and then schools improve because teachers what?
Will be afraid and they will work harder?
Who will become a teacher in such circumstances? Will ambitious or talented people enter that profession?
JBH: If you are being intellectually honest, you'd at least admit there is a conflict between 'the people' about how to prevent the nation from decline. Some of the people think that the educational system should be given more and that teaching should continue to be an attractive job for smart, hard working people rather than one step above working in fast food. (I'm not a teacher, I just have kids in the public schools.)
Posted by: moe at February 20, 2011 12:41 PM
•$49,051: Average salary for Wisconsin teachers in 2008-09, when the national average was $53,910.
•$48,315: Average salary for all private-sector workers in Wisconsin in May 2009, slightly lower than the salary for public-sector workers, $48,348.
Sources: Wisconsin Department of Public Instruction; Economic Policy Institute
The analysis using BLS data you show in your entry has been called into question because of it's methodology. However, if Wisconsin's teachers think they can get a better deal in the private sector, they are welcome to do so. Note that Wisconsin's cost of living is lower than the national average, which would explain why their teachers are paid less than the national average.
Posted by: Fr0sty at February 20, 2011 03:52 PM
I am a NYC teacher and my husband is a small business owner. His business has stayed a float by civil service workers. At this time, in this economy the majority of home owners with civil service jobs have the money for home improvement. If they aren't able to spend the economy with suffer even more.
Posted by: Gaby at February 21, 2011 05:58 AM
Fr0sty: Could you please elaborate on your statement: "The analysis using BLS data you show in your entry has been called into question because of it's [sic] methodology." There are questions about methodology all the time -- sometimes relevant, sometimes irrelevant. In particular, you have not forwarded a better way of assessing matters. In fact, you are breaking the data into broader bins than in the Keefe study; what is the logic of that?
Posted by: Menzie Chinn at February 21, 2011 11:31 AM
@Jeff_K: The problem with the article you linked is that it doesn't separate by level of education within a given profession. In many of those professions the private sector employs large numbers of individuals with varying levels of competence and education, where the federal government presumably employs very few and wants the best of the best. Public Relations Manager, Budget Analyst, and Economist are some professions on that list where this presumably applies.
Posted by: Addison at February 21, 2011 03:47 PM
All the nits and side observations apart, there is an interesting statistical point. I wonder if the private compensation statistic is skewed by high end compensation. So not sure if we are discussing mean or median values. the old what happens to the average income of a room when Bill Gates walks in. However, since public employees essentially forgo the kind of opportunities for large compensation as a trade off for security and benefits, the statistic would not be misleading. Interesting, I think since middle class private employment has suffered in many ways recently, now the tactic is to turn the private employment middle class against the public without discussing what happened to private middle class employment situation. If white collar private middle class had more union representation, we wouldn't be in the situation in the first place.
Posted by: ecltobsrv at February 21, 2011 05:10 PM
Come on people, use your heads. Where are these cushy state/local public sector jobs?
Teachers? Yeah, that explains why a number of my teachers had to have second jobs as waitresses to make ends meet. Police officers? I'm the son of a cop, and although my parents simply chose to go out, their income was low enough to qualify for food stamps. I can tell you cops aren't rolling in it. Neither are fire fighters. Between those three groups, we've already covered a not-insignificant section of the public sector.
I could continue rolling through groups, but state and local government has been getting squeezed pretty hard since 1980. Each time the unions go without a contract - as they are now - they also don't see any raise while cost of living continues to march on. Come on people - use your heads. Common sense tells you the exact same thing as the academic studies show - the public sector earns less - and some times quite a bit less - than the private sector.
Posted by: Chris at February 21, 2011 06:17 PM
Moe, you realizes that all of those high school teachers have at least a bachelor's degree (with the student loans to show for it), often master's degrees, and PhDs are not uncommon.
In comparison, only 30% of full-time private-sector workers in Wisconsin hold a bachelor's degree or higher.
The fact that those numbers are so close, when one group has 100% with a bachelor's degree or higher and the other group only 30% proves the opposite of what you think it says. It shows pretty clearly that teachers earn less.
Posted by: Chris at February 21, 2011 06:21 PM
You asked if there were non-monetary reasons that could make a public sector job more attractive. Most definitely! Many of us are truly there to give back to and improve our society. Most of the people I know (myself included) went to school knowing that we would not make big money in our chosen careers. We are there because we care. That kind of satisfaction is something money cannot buy.
Posted by: Kate at February 21, 2011 07:05 PM
I very much agree with Steven Kopits, Rep. Paul Ryan is a hypocrite
Posted by: Leonardo at February 26, 2011 01:17 PM