How to Tackle Government Labor Costs

Gary Shilling: How to Tackle Government Labor Costs - WSJ.com
Years ago, there was an informal "social contract"—public employees generally received lower wages than private-sector workers, and in return they got earlier retirement and generous pensions, allowing them to catch up. That arrangement has long since gone by the boards.

The result is a remarkable trend. State and local government employees for years have received pay increases in excess of inflation, and BLS figures show they now have wages that are 34% higher on average than in the private sector.


.... The average quit rate among state and local employees is a third of that in the private sector.

Public employees also have a 70% advantage in benefits..... In 2009, BLS figures indicate that the costs of health insurance were 2.18 times as much for state and local employees as for private-sector workers.

In the private sector, defined-benefit pensions have declined over the years in favor of defined-contribution plans such as the 401(k). In 2009, defined-benefit plans were available to only 21% of private-sector workers—but to 84% of municipal employees, according to the Cato Institute. And public-sector defined-benefit plans paid retirees about twice as much as those in the private sector.

Public-sector retirement costs also are high because many can retire at age 55 after 30 years of employment with pensions equal to 60% or more of final salary, which is often jacked up by lots of overtime in final working years. In some states, employees can "double dip" by retiring early and then resuming their previous jobs or taking other government positions. So they get salaries and pensions at the same time.

The answer to the problem is to attend to the problem, public sector unions, union rules and overpaid, underworked employees.

If you don't acknowledge the problem, you won't fix the problem.