From the National Employment Law Project:
Industry dynamics are playing an important role in shaping the unbalanced recovery. We find that three lowwage industries (food services, retail, and employment services) added 1.7 million jobs over the past two years, fully 43 percent of net employment growth. At the same time, better-paying industries (like construction; manufacturing; finance, insurance and real estate; and information) did not grow, or did not grow enough to make up for recession losses. Other better-paying industries (like professional and technical services) saw solid growth, but not in their mid-wage occupations. And steep cuts in state and local government have hit mid- and higher-wage occupations the hardest.
Pointer from Tyler Cowen (also Mark Thoma).
Focus on the last sentence. What if pay for all government workers–federal, state and local–had been reduced by 5 percent at the start of the recession? How many jobs would have been saved?
In general, I think that we mis-frame the government budget issue when we talk about taxes vs. program cuts. Instead, we should be talking about taxes vs. reductions in compensation for government workers. It is not at all clear to me that we need to reduce incomes in the private sector in order to maintain incomes in the public sector.
Ouch. It is a very good question. Government compensation should surely be on the table.
I’m sure all of our big-hearted public servants will be more than happy to pitch in their fair share to help out the people they are serving.
Plenty of public servants have seen wage cuts. For example, in Texas the legislature voted to let teachers be furloughed or to let districts cut their pay before resorting to lay offs. For all that, tens of thousands of teachers were laid off anyway, to the point where it actually bumped up our unemployment numbers. Point being: the scale of spending reductions has kept this from being an either or question.
On the federal level, employee pay is a fraction of total spending. For example, about 2 percent of SSI’s budget goes to administrative costs. Assume all of that is salaries, reduce it by 100 percent, and you still haven’t fixed the projected shortfall.
Plus their are constitutional and rule of law problems, since there are contract clause and due process concerns to the extent a wage reduction violates a written k. A state impairing its own contract obligations rightly faces the highest level of scrutiny under the contract clause.
And lastly, this should obviously be a case by case inquiry. Some programs are really stupid and should be cut. Some government workers are overpayed and should be paid less. Some should be fired. Most are paid stupidly and should be paid smarter. And then lots of projects are inefficient and should see budget reductions. What possible reason is there to reject all of those except reducing employee pay?
Well… what if we took 5% of the government employees out and put a bul—
OK, that’s maybe a little too sarcastic.
However. I think it obvious that this recession is going to make permanent changes in the nature of future goverment employment, particularly at the state and local level. Governments, for their part have learned that wages and benefits for their employees are much more fungible than previously thought. I.e., state governors can indeed demand paycuts and reduce or eliminate pensions for their workforces, even their unionized workforces. This is not a lesson that is going to be forgotten.
And government workers and their families have learned that government pension plans are often fraudulent, that roughly half their fellow citizens despise them, and that career paths in government even for thosse in unions is not safe and smooth. These are lessons that will last for generations.
My personal bet is that as the general economy improves, more and more teachers and other state and municipal workers are going to “bail out” and find private sector jobs — the “more qualified” workers in particular. Some number of federal employees will probably do the same as opportunity arises, and many of the employees being laid off by firms which have lost defence contracts will have learned to never return to employment based on government spending.
The recession, in other words, is a ‘transforming experience.” The relationship between governments and their employees is finally shifting towards that existing between ordinary American corporations and their employees.
I understand this shift looks desirable to libertarian economists. Are you quite certain as a US citizen that is going to work out for the best?
Also, isn’t a freeze in nominal pay over 3 years more than a 5 percent reduction in real wages, even with inflation as low as it has been? In which case, haven’t federal employees already done what you propose, via the pay freeze?