There is nothing like a severe, persistent, financial shortfall to sharpen one’s focus on what is essential and what is excessive. As governments across the nation agonize over budget cuts, public-employee pay and benefits continue to be scrutinized and questioned.
With so many Americans unemployed or underemployed, and with so many more dependent on shrinking IRAs and 401(k)s for retirement, there isn’t a lot of sympathy for government employees whose pay and benefits are not only comparatively sumptuous but that are also virtually guaranteed by taxpayers, most of whom enjoy no such guaranteed financial security.
Because the various justifications for government employment being so much more richly rewarded than private-sector employment have generally been refuted or rejected, the overly blessed ranks of public employees along with their political allies are now defending their generous compensation by positing that it is inherently fair and should be the norm for all workers, public and private.
Following this argument, private-sector workers should receive pay and benefits, especially retirement benefits, equivalent to those of government workers. Private-sector employers would be expected to finance massive retirement programs that allow workers after 25 or 30 years of employment to retire with nearly full pay and health coverage for life. So, employers could concurrently pay two or even three times for a single position. For example, Santa Barbara County is paying its current sheriff a six-figure salary while it funds a similar salary for two former county sheriffs. In fact, there are more than 150 retired county employees receiving in excess of $100,000 per year in retirement. The outlay for this generosity is nearly $20 million per year — just for these 150. What do the retirements of all those lower down the county food chain cost taxpayers?
What would happen to the U.S. economy if indeed all private-sector workers had compensation packages equivalent to those in the public sector?
We need only look at what happened to the American auto industry to see what becomes of an enterprise that succumbs to relentless demands by labor for greater pay and benefits. These companies became noncompetitive because unreasonable labor costs pushed their product pricing too high. General Motors became the largest provider of health insurance in the nation. And, when automation reduced the need for labor, auto companies were, nevertheless, compelled to compensate idle, unneeded workers for years.
Companies located in America do not exist in a closed economy. With the advent of economic globalization, inefficient companies are no longer protected from global competitors. So, even if the government forced all employers to match the lavish compensation paid to public employees, more American companies would move operations offshore while more foreign companies would be able to under-price and out-compete companies burdened with the higher U.S. labor costs.
Government employees are probably not going to have their jobs outsourced to India. Unlike government workers, private-sector employees do not elect the people who will determine their compensation packages, nor do their employers have the ability to keep raising prices without losing revenue to competitors. Government is a monopoly that can legally confiscate money from the public through taxes. The federal government can even create more money by simply printing it — as it is doing now.
Most jobs in America are provided by small companies. How many of these could thrive if they were forced to pay their workers what public employees get paid? Private enterprise, unlike government, must earn a profit to survive. It would not sacrifice profits to increase compensation packages. Private-sector employers, if compelled to increase labor costs, would raise their prices to offset it. Economists once referred to this as cost-push inflation. In this situation, the pay gains labor received would be eroded by the higher cost of living.
Ultimately, there is never a free lunch. We see how true this is now in Europe as nations whose laws generously favor labor and whose luxurious public welfare systems make it easy to be unemployed are now writhing in the agony of inevitable financial reckoning.
Just as financial excess and mismanagement eventually bankrupts private-sector enterprises, decades of profligacy financed with other peoples’ money — taxes and borrowings — have brought governments, including America’s, to the brink of bankruptcy.
Spreading government lard to the private sector would not make government more efficient or the private sector more competitive. The proposition that the problem is not that public-sector employees are overcompensated but that private-sector employees are undercompensated is as fatuous as contending that the obese aren’t fat, it’s just that everyone else is skinny.