Wednesday, July 27, 2011

On Public Sector Salaries

I woke this morning to another union-busting editorial in the Southern. It seemed rather more clever than the last one, at least as I read it half-awake, as I prefer to read the Southern.  It's passive-aggressive: we poor taxpayers deserve compassion from the overpaid public employees waving high quality signs and making radical demands, including that the governor keep his word. That is, public sector employees and their unions should shut the hell up and take their lumps, contracts be damned.

The story is based on a study by a right wing think tank, the Illinois Policy Institute, whose "Academic Advisors" include our own Jonathan Bean. (Jon, I bet you're reading this: I'd be interested to hear your take on the study under question.)  I am not an economist, but that report strikes me as very shoddy indeed.

Its fundamental finding is that the average state and local government worker in Illinois makes more money than the average worker in the private sector. This factoid tells us absolutely nothing important, for it fails to consider the job mix in the private and public sectors. If more private sector jobs are low-skill tasks, we would expect private sector jobs to pay less. The report recognizes this problem, but despite a misleadingly named "comparable job analysis" it fails to account for it in any way whatsoever.  That so-called "comparable job analysis" is simply a study of trends in compensation over time. But trends in compensation will also depend, for better or worse, on the skill level: salaries at McDonald's may not have not gone up as fast as salaries for professionals.

To compensate for its failure to compare apples to apples, as my trignometry teacher used to warn us to do, the study argues that public sector employees must be overpaid because there is less turnover in the public sector. That is, they don't quit their government jobs because they're overpaid. This is a lousy argument. Rather, public sector employees are willing to be underpaid, in relative terms, because they enjoy more job security. There's less turnover because public sector employees are harder to fire--which in turn makes them less likely to leave their jobs.

More on university salaries and on a competing analysis of public sector salaries after the break. Plus, there's a graph . . .

On the larger matter of public sector salaries, see a rather more impressive study by a left-leaning think tank, the Economic Policy Institute. That study focussed on Wisconsin, but surely the story would be similar in Illinois.  The key feature of that study is to look at employee education levels, and this graph (which I picked up from the blog Econbrowser) nicely summarizes the results. I haven't scrutinized this report, but it does at least make a genuine effort to compare comparable jobs, via educational levels.


Until I get my posh job working for a private sector think tank, I won't be able to study this matter in great depth. But I think we SIUC professors are painfully aware of the fact that private sector college and university professors make more money, on average, than their public sector counterparts. I'm not sure why this is the case. I can think of one good reason for it: a higher proportion of private universities are "elite", I suppose. I can also think of a bad reason for it: while public universities try to keep costs low, private colleges pride themselves on high faculty salaries--it's one of the items they compete against each other on. We must be better because we pay our professors more! The academic job market is of course a poor example of the free market at work, given the tenure system et al. The fact that I happened to get my current job rather than the sort of job some of my similarly qualified classmates did, a job at a liberal arts college of similar stature where salaries are considerably higher, is largely a matter of chance, as far as I can tell.

1 comment:

  1. I read that this morning and groaned. I almost commented on it on my blog but decided I'd rather write a response letter back instead. I'll be sending that in this afternoon and I hope they publish it quickly (rather than a week later).


I will review and post comments as quickly as I can. Comments that are substantive and not vicious will be posted promptly, including critical ones. "Substantive" here means that your comment needs to be more than a simple expression of approval or disapproval. "Vicious" refers to personal attacks, vile rhetoric, and anything else I end up deeming too nasty to post.