Based on news stories about teacher layoff notices and tough times at city halls and the state capitols, one would think that the government and its workers are suffering disproportionately during this down economy. Actually, the truth is quite the opposite. Government continues to grow, and its workers continue to gain significant salary and benefit increases.
USA Today reports that, nationwide, “The pay gap between government workers and lower-compensated private employees is growing as public employees enjoy sizable benefit growth even in a distressed economy.”
Americans in the private sector must rely on defined-contribution retirement plans and 401(k)s. In those plans, the company and employee contribute a set amount of money each paycheck, and the eventual payout depends on how well the investments perform. In the public sector, workers typically receive defined-benefit plans, in which the agency promises a taxpayer-backed guaranteed amount at the time of retirement. Over the years, public-sector unions have encouraged politicians to continually expand the amount of pension guarantees. The state retirement systems also are dependent on investments, but if the promised rates of return don’t materialize, the taxpayer must make up the difference. The retiree still receives the full promised benefit.
Currently, public-employee retirement systems are in trouble thanks to the economic downturn, and politicians are talking about using tax dollars to bail out these funds. In the private sector, the employee simply must make do with less.
Meanwhile, public employee pensions are scandalously underfunded, as Megan McArdle explains in the Atlantic: “It wasn’t that long ago that they finally got around to doing their accounting the way that normal pensions do: by showing how likely their assets were to generate enough revenue to pay for future benefits. When they did, we found out what critics had long been claiming: many pension funds for state and local governments were disastrously underfunded. Politicians had gotten into the habit of promising generous pensions as a ‘cheap’ giveaway to powerful unions.”
So taxpayers will no doubt be forced to pony up to make good on these sweetheart deals granted by politicians who are more interested in avoiding union-caused political problems than in protecting taxpayers.
There used to be a time when public employees received lower pay in exchange for greater job security and somewhat more generous benefits. But now the benefits are far superior to those earned in the private sector, and even the pay scales are out of whack. As USA Today reported, public employees earn an average of $13.38 an hour compared with $7.98 for private-sector workers. Government employees earn nearly $12 an hour more than private employees in terms of total compensation. The newspaper added that even during these tough times public employees have gained $1.17 in new benefits for every increase of a dollar in pay compared with a 58-cent increase for private-sector employees.
Public employees work fewer hours, earn far higher pay and much higher benefits than their private-sector cohorts. They retire at earlier ages and — despite a few furloughs and layoff notices (most of which do not result in actual layoffs) — have better job security during economic downturns. It’s time to push the pendulum back in the other direction, which won’t happen until the voting public gets fed up with politicians who continue to aggravate this unjust imbalance.