Overpaid Public Employees: 'The Democratic Party's Epic Failure'

David Brooks calls high public sector wages "the Democratic Party's epic failure," the same day the Washington Post reports on a tsunami in municipal pensions. It's time to debate public sector retirement packages again!

I've hosted, and commented on, the ongoing debate about compensation for federal and state employees here and here. The argument tends to go like this. One side says, correctly, that public sector workers on average receive slightly higher wages and much higher retirement promises than private sector workers. The other side says, correctly, that public sector workers tend to hold more degrees than the average private sector workers, which explains almost the entire difference.

But there are two debates living in this argument. One is how we should pay public sector workers. Two is how we should structure retirement packages.

First, let's talk public salaries. Brooks writes that "[Democrats believe] in the positive uses of government. But if you want the country to share that belief, you have to provide a government that is nimble, tough-minded and effective." Is it unproductive to pay government workers high wages? If we want a "nimble, tough-minded and effective" public sector, shouldn't our compensation packages attract nimble, tough-minded, and effective public workers?

The trouble with public salaries and compensation is more complicated than: Democrats won't stand up to public unions. As Andrew Biggs, an AEI scholar who has studied public compensation for year, told me, the pay gap difference between federal and private jobs is not uniform. "In general, the pay premium is very large for low skilled workers, and small or negative for highly skilled workers," he told me. In other words, we overpay for clerks, underpay for regulators. Cutting wages across the board will discourage smart and accomplished people from serving in public office.

The second debate here is how to design a retirement package for local, state and federal employees that won't blow up when the economy goes south, the stock market kills returns, and tax revenue falls. This is a complicated issue that Megan has written about quite a bit, and I'm playing a bit of catch-up here. But it's hard to see a way this crisis doesn't end with restructured benefits.

For years, public sector unions negotiated better retirement packages for their members. That was their job, after all. For years, states agreed to higher defined benefits in exchange for slower pay growth in the short-term. Now the promises are coming due and there's not enough money to pay public employees what they were promised. There are really only two choices for states without a government bailout. They can either cut spending dramatically on roads and schools to fulfill retirement obligations or they cut promises to retired workers. They'll probably try both.

But this isn't really a Democratic failure. It's the same classic American failure we see at every level of government. We promise ourselves more than we're willing to pay. Public retirees contributed less to their plans and expected higher returns, but is that so different than taxpayers expecting more services with perennially lower taxes? I don't think so.