Thursday, March 3, 2011

Public Employees: Over or Under Paid

After hearing all about the vastly Overpaid/Underpaid Wisconsin Public employees, I chose to do a bit of Google searching. My opinion after briefly reviewing these is that they are probably compensated similar to the Private employees with similar educations. This makes sense to me.

EPI Briefing Paper: Debunking Myth of Overpaid Public Employee
PolitFact: FOX news claims
Out of Balance: Public vs Private

The problem is that I have found no weighting of the data for hours worked and other key factors that would justify paying the Public Workers less in Monetary Compensation. Here are some of them that occured to me:
  • High Job and Compensation Security: Public employees with seniority are virtually guaranteed continuing employment and increasing compensation. Their productivity, their efforts, economic recessions , etc have only a minimal effect on them. Whereas the Private employees accept additional risk in these areas. The Public employees security must be worth something, and the Private employees risk acceptance should be rewarded.
  • Shorter Hours: I could not find anything that discussed the number of hours Public Employees worked to earn that stated compensation. Let's assume that many of them are Teachers that work ~9.5 mths per year. Whereas the vast majority of full time Private employees work 12 mths/yr, and they are certainly not paid for not working. If this is true, then these Teacher's should be paid 20% less than the Private employee. (~$16,000 less on $80,000 in total compensation)
  • More Responsibility: They noted that Private employees are often rewarded more generously than their Public counterparts for earning degrees and gaining experience. However they seemed to miss noting that Private employees only gain this compensation by taking on more responsibility, working more hours and delivering bigger profits. (ie oversees more projects, dollars or people) As compared to a Teacher who has 20 yrs of experience, a Masters Degree and a Doctorate, and still only teaches one class at a time... (ie similar responsibility and productivity to a starting teacher? 3 times the comp?) Of course Private employees who take on more Responsibility should be paid higher than Public employees who are still doing the same job as when they started.
  • Extra Real Interesting Benefits: Teachers and some other employees have some very interesting benefits that are not typically available to Private employees. The ones that I find fascinating are "Leave of Absences" and "Sabbaticals". This is when an employee can take off up to 5 yrs for some personal reason or education goal, and be guaranteed a job when they decide to come back to work... With these kind of unique benefits, the Public employees should be paid less than their Private employee peers.
So it seems that what is on paper may be somewhat misleading. I would be the first to support Private / Public employee compensation equity once some of these other inequities are resolved. Until then I believe the Public employees are definitely over compensated, all things considered.

With this in mind:
  • Let's pay Public employees based on performance/results/responsibility, and not on years of experience and amount of education.
  • Let's give Managers the freedom to fire employees that are not performing or meeting other job expectations.
  • Let's ensure we are comparing equivalent compensation per hour worked.

Then we can actually compare apples to apples. Besides, then the Public Bureaucracies will improve as the ineffective employees are weeded out and forced to pursue careers that better fit their capabilities. Thoughts? How can these improvement ideas not make sense?


Anonymous said...

The simple solution is to eliminate public sector unions and pay teachers, at least, based on merit. Then we should start evaluating all other government programs on a cost-effectiveness basis, and squaring employee costs with what they "produce." Technically it's pretty simple, straightforward Business 101.

J. Ewing

nokomis said...

While I could quibble with some of your numbers, I actually agree (somewhat) with all 4 of your major points. You did lose me at end, as I have reservations about performance pay, especially how performance will be measured. And relatedly, I found the bullet point about firing a bit harsh.

I know someone who has been teaching for 25 years and is by now a bit burned out. This person shows up everyday, does an adequate job, and even takes work home. Yet, without the security provided by the union, the district might decide to find a highly motivated young replacement for half the pay. I don't think the veteran teacher deserves to be fired, losing health care coverage and, perhaps, even their home, as finding a new job at that age would be quite difficult.

Maybe the pay scale should be flattened some. It already has been at the charter schools I am familiar with. Or maybe businesses could provide a career path out to a living wage job for burned out teachers, thus helping to improve the schools. Teachers could learn to do many jobs in the private sector as well as any other nonspecialized college graduates.

I chose teaching for the enjoyable and rewarding work experience (which you forgot to mention as another benefir)) and just think teachers should be paid a middle class wage that allows them to afford a moderate home, a reliable car, and perhaps even save enough $ to pay for their kid's college tuition.

John said...

In the Private sector, Supervisors get to evaluate employee performance based on many criteria. It is a mixture of the objective and subjective...

And it is not perfect, but it is part of the Supervisor's job. Typically, opinion surveys also occur so that bad Supervisors are also trained or fired.

As for "fired"... Remember that there are many laws to protect older workers from discrimination.

Is seems cold to me that we maintain a burnt out Teacher in the classroom. The kids lose out and the Teacher's life can't be too much fun.

By the way, the Teachers I term as incompetent has more to do the competence that energy. My girls have had Teacher that can not control the class, they lose assignments and blame kids, provide unclear assignments, etc. These are the Teachers that all the informed Parents know about and work to avoid.

I am happy you enjoy your career. 95% of the Teachers I know are great and should be well rewarded. Since the Profession is so important to the kids and the future of our country.

Anonymous said...

All I know is that I get paid a lot more than teachers, have much better benefits, and work much less, in a job that's far less valuable.

Public employee compensation has very little to do with the extent of the overwhelming financial problems we face in Minnesota. Those are largely due to the aging of the population, to which pension issues, public and private are an effect, not a cause.

One irony of the Wisconsin situation is that because the state was run on a much sounder financial basis in the last few years, their financial problems now are much less severe than those faced by Minnesota. But they have the same structural deficit problems we do, and if something isn't done about those, their situation will deteriorate. And the pay cuts unilaterally imposed on state workers will have very little impact on that going forward. The rate at which Wisconsinites age has no relationship to the rate at which Wisconsin employees get paid.

Anonymous said...

"The simple solution is to eliminate public sector unions and pay teachers, at least, based on merit."

Why do you assume paying teachers based on merit would result in lower rather than higher compensation?

John said...

I'm fine with paying more for a Public Education system that removes inefficiencies and incompetent employees. Then let's pay the great Teachers more with the savings.

Money isn't the issues for me... Improving effectiveness and learning is the goal... (better return on investment) We owe it to the kids more than we owe jobs to the questionable Public employees.

That applies to the other Public employee sectors also. MN DOT seems ripe for some effectiveness improvements.

As for fixing the structural issue, everyone will need to give up something. If we all give up a little, no one should need to give up a lot.

And the Public sector must become more effective. We simply can not afford it if it does not.

Questions I ask:
Assuming Americans work 4 mths/yr to just pay the cost of government and society, how many months do you think we should pay?

And when will the burden become so high that more and more people lose hope and just stop working to get ahead?

Remember that most tax dollars go to keeping the system running. There is very little true wealth creation attached to them. (ie wealth = knowledge, goods or services that other countries will pay for) The exception being some portion of the education dollars.

And without Wealth creation... The air goes out of our balloon with the trade deficits. Which means our standard of living drops.

The upside... When our std of living drops far enough... Then we will be a low cost manufacturing country and get all those jobs back from China and Mexico.

Anonymous said...

"As for fixing the structural issue, everyone will need to give up something."

But they aren't of course. Wisconsin passed a tax cut immediately before asking for givebacks from public employees. In Minnesota, public employees will be asked to take pay cuts and layoffs while tax increases on higher income workers who make vastly more than those supposedly over compensated public workers is a total political nonstarter.

Anonymous said...

without Wealth creation... The air goes out of our balloon with the trade deficits.

The wealth created during the Bush years, was nothing more than air in a balloon. When the balloon popped, all of it was gone. Yet our teachers kept on teaching, and our policemen and firemen kept on keeping us safe. And I don't know of any of them who have threatened to move to Florida if asked to pay a few more bucks in taxes.

John said...

I actually agree with you, it is time for the Republicans to put up or shut up... (ie show me your comprehensive balanced budget proposal) See Hiram's/Jon's and my comments for more.SG Can't Make This Stuff Up

Please do not confuse wealth with money or stock prices. What we saw in the 2000's was an increase in valuations. (ie property and stocks) My definition of WEALTH has more to do with Intellectual Property and Skills.

Thank God for Microsoft, Medtronic, Google, John Deere, Caterpillar, Ford, GM, Boeing, Intel, IBM and the other companies that are still innovating, creating and building. And the farmers that keep using the natural resources to create renewable WEALTH.(ie food) And the good schools and teachers that increase the knowledge of our citizens.G2A Made in America

John said...

One request of my Anonymous guest commenters.

Would you please just sign your comment with some consistent nick name? It helps the rest of get a feel for who you are, and it helps us reply more coherently. Thanks !!!

Anonymous said...

Wealth comes in all kinds of different forms. I believe that intellectual property is one of the great emerging sources of wealth in the 21st century, but such wealth can often be translated into market terms. The wealth of Microsoft for example, is based largely on the intellectual property it owns, and that wealth is reflected in it's market capitalization.

Wealth is durable. Ownership of the process of creating food can constitute wealth, but not food itself. Nobody ever got rich canning beets.


nokomis said...

Jon Stewart makes some funny arguements about us overpaid teachers.

Robert Reich also compares teachers salaries to hedge fund managers:

"Last year, America's top thirteen hedge-fund managers earned an average of $1 billion each. One of them took home $5 billion. Much of their income is taxed as capital gains - at 15 percent - due to a tax loophole that Republican members of Congress have steadfastly guarded.

If the earnings of those thirteen hedge-fund managers were taxed as ordinary income, the revenues generated would pay the salaries and benefits of over 5 million teachers. Who is more valuable to our society - thirteen hedge-fund managers or 5 million teachers? Let's make the question even simpler. Who is more valuable: One hedge fund manager or one teacher?"

While I am skeptical of his 5 million additional teacher claim, the point would stand even if it were a tenth of that.

Getting back to the original post, charter school teachers lack some of the "hidden bennefits" that John elaborated. We have no tenure and sometimes less than average security for a challenging job. Teachers are routinely let go; in one case a fresh college grad was given only 6 weeks before being shown the door. We also work a longer school year. I will be teaching the month of July. We have a flatter pay scale and performance based bonuses. And there is a small career ladder for teacher leaders to advance in responsibility and pay.

John said...

I agree that hedge fund mgrs are grossly overpaid... Unfortunately it seems that their clients think their personal financial benefit is worth the fee. And since they are freely paying the Mgrs fee, who are we to argue.

Now how much of "THEIR" cookies do they owe society for the benefit of being able to business in America? That is another question that only Government/Society can answer... And right now that answer is 15% of their gains... Seems like a pretty good cut for the House. I only pay ~1% on my Vanguard fund fees.

The challenge with the "it could hire 5 million teachers argument" is who's cookies are they... And since we are not a Socialist country yet... I assume the money belongs to those the invested it.
G2A Entitlement of Gratitude

By the way, the 15% rate is their to help people like you and me as much as those rich folk. It is there to reward saving and investing. Though you are correct that the higher tax brackets get a bigger benefit.

And given the state of the normal folks net worths, I think some more saving would be beneficial.

Anonymous said...

Back to the basic question. I think some teachers are overpaid and some underpaid. Elimination of public sector unions and basing pay on merit solves that problem, both immediately and over time.

Under this desired state, terrible teachers would be dismissed immediately. The remaining teachers would be evaluated on a combined objective/subjective semi-annual review and their RAISE would be based on that (grading on the curve). The poorer teachers would get no raise and, over several years, would lose salary against inflation, paying them "what they're worth" or convincing them to go elsewhere. The better teachers would be placed onto a career ladder of 3 or 4 steps ending in "master teacher" who trains lesser teachers in effective teaching, INCLUDING managing larger and larger classes (making their higher salaries a good value).


nokomis said...

about hedge fund managers, I thought my point was that there ginormous earnings should be taxed as income at the higher 35% rate, rather than the 15% capital gains rate. I don't see how this lower tax rate for them benefits the country or people such as myself (even if I had significant $ invested, which I don't.)

Numbers Guy said...


What do you know beyond what you read in the Reich article about the taxation of traders/hedge-fund manager?

I have worked in the taxation area for these kinds of businesses. Most of these kinds of people and businesses actually are doing trading transactions (gains and losses). The 15% capital gains tax rate applies to long-term (held over 1 year). Therefore, ordinary income and short term capital gains are taxed a regular rates.

In my opinion, the Reich's article didn't provide enough information to make the conclusions he makes regarding the additional taxes to hire more teachers. You would need to know the current split of ordinary, S-T and L-T capital gains earned. Then, a tax law change that would effect ALL TAXPAYERS would have to be passed and signed into law. In my opinion, that is not good tax policy to tax long-term capital gains at the same rate as ordinary income. Also remember, that long-term capital losses can't off-set ordinary income (over $3,000).

John said...

I was puzzled that they would be Capital gains at all... Since technically it isn't their money being invested or seeing the gain. I would think the Hedge Fund Mgrs cut would be earned income... And the Investor would treat it as an expense to be subtracted from their Capital gain.

nokomis said...

Numbers Guy,

Your comments on capital gains tax policy are over my head. To get the benefit of a lower tax rate shouldn't these hedge fund managers be creating/investing(?) in something of value rather than developing complicated financial products used to gamble wiith other peoples with great gains for themselves.

By now it should be clear to you this is something I understand very little about. It's just my general impression that they make obscene amounts of money, nearly caused a global finacial collapse, stuck it to average taxpayers, and don't pay their fair share of taxes. From a lefty perspective this is called privatize profits and socialize loss (i.e.the wall street bail out.)

Also, back to your original point, John's brief comment, is clear and sounds about right to me.

Anonymous said...

The question wasn't about hedge fund managers being over or under compensated. (I suspect there are many that lose their shirts compared to the few who get filthy rich.) The question was about public employees, and my comment that you'll never know until public sector unions are eliminated still stands. If we're talking about value to society, how about Oprah's billions, or Charlie Sheen getting $2 million per episode for his worthless TV show? At least the hedge fund manager produces something of value (reduced risk to others).

J. Ewing