Shameful Attack, or Necessary Adjustment?

Last week former Clinton labor secretary Robert Reich wrote a commentary entitled “Someone Has to Stop This Shameful Attack on Public Employees,” which was published on Business Insider. Reich’s comments, which essentially attribute these “shameful attacks” to an assortment of “Republican tricks,” invite a rebuttal, especially since he claims “the right’s argument is shot through with bad data, twisted evidence, and unsupported assertions.”

Reich argues that public employees are not overpaid compared with private sector employees because, on average, they have higher levels of education. To use California as an example, this would mean Reich is saying that more employees with higher education explains a disparity of $108,000 per year in average total compensation for a state or local government worker, vs. $57,000 per year in average total compensation for a private sector worker. Can this be attributed purely to higher levels of education and higher levels of required skills?

What Reich doesn’t take into account is that total compensation of government workers depends on how much per year has to be contributed by the government into their pension funds. At rates of return of 8.0%, which is what these funds have delivered during the debt-fueled economic growth of the last 20-30 years, the employer only has to contribute – on average – about 25% of a public employee’s salary into their pension fund. But during this new era of debt reduction, economic growth may slow, and this could last for 10+ years. And because these pension funds have grown so large, it is no longer possible for them to consistently beat the market. Unless pension funds suddenly exceed expectations and turn in returns of 8.0% or more for the next several years, public employee compensation – as it is currently reported in most studies – is grossly understated, because the required current year funding requirements for their pension funds is grossly understated.

Returning to the issue of pay disparity, anyone who thinks public employees are not overcompensated should look at specific examples. When one includes realistic levels of pension fund contributions, the average total compensation for firefighters in California’s Sacramento County is $180K per year, in return for working two 24 hour shifts per week. In Costa Mesa, California, total compensation averages $202K per year for firefighters and $197K for police officers. In El Segundo the average total compensation for firefighers is $251K, and $216K for police officers. These amounts are fairly representative of what public safety employees in California actually earn in total compensation if you accurately account for their required pension fund contributions, as well as the annual contributions required to fund their retirement health care. Do the risks taken by these professionals justify these premiums? Can any sort of equivalent be found in private industry? (ref. Why California is Bankrupt)

The Los Angeles Business Journal, in a report by Lanny Ebenstein entitled “Unions Push Public Pay Out of Scale,” published online on December 20, 2010, reported details on the inflated salaries paid employees of the city of Los Angeles:

“There are more than 80 types of clerical positions. The pay range for these is, on average, $43,600 to $53,200 per year. In general, after five years employment, a secretary will earn $53,200, well above what the private sector generally pays.

The salaries of clerical workers are commensurate with those of other city workers. Child care associates, golf starters and salaried recreation workers all typically receive more than $40,000 a year to start and all other full-time, salaried city recreation positions receive more than $50,000 a year to start.

With respect to sick leave, six days a year is common in the private sector, and sick leave often is use it or lose it – it cannot be banked for future years or counted toward retirement. In the public sector, it is entirely different. While different agencies negotiate different sick leave benefits, 12 days of sick leave or more per year is common. The city of Los Angeles provides 17 days of sick leave per year for many employees – 12 days reimbursed at 100 percent of the employee’s daily rate and five days at 75 percent. In addition, sick leave may be accumulated and retained days credited at retirement as additional days worked.”

Even the liberal Los Angeles Times, like many liberal newspapers across the U.S., is beginning to provide balanced coverage on the issue of public sector compensation. A report published on October 20th, 2010 says it all just in the title: “Nearly 200 L.A. County employees took home more than 250K in compensation last year.” Always remember that when you account for current benefits, and realistic current year funding requirements for future retirement benefits, this $250K will swell up to about $400K. How many large corporations have over 200 executives making over $400K per year?

Robert Reich isn’t so naive as to suggest there is nothing wrong. Towards the end of his commentary he acknowledges that “some reforms do need to be made,” and he goes on to cite the abuses of pension spiking and double dipping. He then suggests these are the exception, not the rule when considering the issue of whether or not public employees are overcompensated.

What Reich doesn’t explore adequately is the distinction between public employees, who are almost invariably capable, conscientious workers, and public employee unions, whose agenda includes protecting problem employees. And Reich ignores the crucial distinction between unions in the private sector vs. unions in the public sector, which is that in the private sector, unions must negotiate realistically, or their financial demands will destroy the viability of the company. But in the public sector, there are no competitive checks on expenditures. In California, unions spend an estimated $250 million per year on politics (ref. Public Sector Unions & Political Spending), and they use this money to elect the politicians who they then “negotiate” with to set levels of compensation and benefits. If there are budget deficits, just issue bonds, or raise taxes.

Ultimately, the cost of unionized government is not just the burden of paying over-compensated public employees, but a host of related problems that stem from the political process being dominated by government worker unions whose agenda is consistently focused on bigger government. It defies common sense that the agenda of government worker unions would be anything else. To suggest the bipartisan awakening to this reality – that public sector unions do not operate in the public interest – is nothing more than a “shameful attack,” ignores reality.