Labor Costs in the Public Sector

Mish compares labor costs in the private and the public sector:

Anyone thinking clearly knows that government employees are ridiculously overpaid in aggregate but inquiring minds are asking “by how much?” That’s a good question, so let’s first take a look at a NYT article, then the underlying data.

I think there’s a reasonable case to be made that government workers are paid more on average than private workers because of college degrees, graduate degrees, skillsets, etc. required in the public sector. Essentially, when comparing labor costs you should be careful to compare apples to apples rather than lawyers to checkout clerks at Wal-Mart. I willl leave the question of whether lawyers should be paid more than checkout clerks at Wal-Mart to the interested student.

However, I don’t think there’s nearly as good a case to made that the cost of employee benefits in the public sector should be so much higher than they are in the private sector, according to Mish’s numbers 30% higher. I think that much of the reason for this is that governments are still using the labor model that prevailed in large companies 30 years ago or more with defined benefit pension plans rather than the defined contribution plans that prevail now and significantly higher employer contributions in healthcare than are common in the private sector any more.

Mish’s overall solution to our federal deficit is pretty draconian:

If it was up to me, I would get rid of the HUD, FHA, Fannie Mae, Freddie Mac, the Department of Energy, and the Department of Education. Furthermore, I would slash military spending by 75%. That is just a start of what needs to happen.

The sad thing is that it indeed is only a start. Doing all of that, politically impossible as it is, wouldn’t result in a balanced budget at the end of the process. It’s not simply that we’ve got to cut more but that we’ve got to cut differently.