Wisconsin and the crisis of public sector pay

Wisconsin Governor Walker causes outrage in Madison, but the show will come to a statehouse near you. Photo: Associated Press

NATCHITOCHES, La.—February 18, 2011—The uproar in Wisconsin is just one skirmish in a battle over public-sector pay, and part of a broader war that will be fought in state-houses across the country over the next two decades.

Wisconsin Governor Scott Walker (R) and his proposals to deal with the state budget deficit have drawn criticism from President Obama. Ed Schultz of MSNBC’s “Ed Show” is now reporting from Madison as if he were on Tahrir Square, and protestors are comparing Walker and the GOP to mullahs, Mubarak, Mussolini and Hitler. Targets drawn on the governor’s face? Who knew that liberals did that sort of thing. So much for civil discourse. 

Opponents to the governor's bill to eliminate collective bargaining rights for many state workers protest in the rotunda of the State Capitol in Madison, Wis., Friday, Feb. 18, 2011. (Photo: Associated Press)

Opponents to the governor’s bill to eliminate collective bargaining rights for many state workers protest in the rotunda of the State Capitol in Madison, Wis., Friday, Feb. 18, 2011. (Photo: Associated Press)

The ghastliness that has provoked such loathing boils down to this: Walker proposes to make state employees pay into their retirement program (they now pay nothing), increase their share of their health insurance payments to 12% (they now pay 6%), and restrict their rights of collective bargaining to pay, not benefits. 

Public employees earn more than their private-sector counterparts. This is true from Washington on down. Federal employees earn an average of $120,000 in pay and benefits, double the private sector average. The disparity is less at the state level, but in Wisconsin the average full-time state employee earns over $70,000 in pay and benefits, about $15,000 more than the average private-sector employee. 

Public workers are quick to point out that they are better educated than their private counterparts, and when you adjust for education, they actually make slightly less. This ignores the fact that most of those public workers at the state level are school teachers.  If it’s unfair to compare college-educated and high school-educated workers, it’s also unfair to compare education and engineering majors. All college degrees aren’t the same. State and Federal governments absorb more than their fair share of “soft” degrees. 

In the bleak fiscal landscape of our nation’s future, public sector pay isn’t really the problem. It’s those benefits. Public employees get defined-benefits retirement programs, while the vast majority of private employers offer defined-contribution programs. The former guarantee you a certain level of income; the latter collect set contributions from employees with no guarantees of any particular return. In the case of Wisconsin’s public employees, defined benefits come with no contribution from the workers—none at all—years and decades of income for free, or if you prefer, for the extra income those teachers and sociologists could get if they worked for private firms in Milwaukee and Green Bay. 

Some public employees in New York and California are retiring at 50 with $100,000 pensions and more. In some cases they get these pensions after only a few years on the job, though it’s rare to become vested with fewer than ten years of service. Unfunded public pension liabilities across the country are at the very least in the trillions of dollars, the numbers varying hugely depending on how strict the accounting standards you apply happen to be. According to the standards businesses use, it’s estimated they double our national debt. These pension liabilities are a loaded gun aimed at every statehouse in the country, at hundreds of cities and thousands of towns.

Asking public sector employees in Wisconsin to contribute a 5.8% of their pay into their pensions (the national average for the private sector) is probably the very least the state’s taxpayers should ask. Asking them to pay 12% of their health insurance costs (about half the national average for the private sector) is also a minimal demand. Neither seems sufficient provocation to compare Walker to Hitler or pretend that Madison is Cairo.

Most of us would be delighted to get what the Wisconsin public employees will be offered under Walker’s plan. We don’t empathize strongly with people who get raises during recessions (as Federal workers have) and who get retirement benefits that we have to pay for. We shouldn’t begrudge public workers a decent wage and a fair pension, but public workers are only a privileged class in places like Egypt and France.

When President Obama reminds us that public-sector workers are our neighbors and friends, he might remember that we’re their neighbors and friends, too, and fair goes both ways.  The private sector can’t carry the public sector in the style to which it’s becoming accustomed. It will have to start carrying itself. And the irony of that will surely be lost on the revolutionaries in Wisconsin.

James Picht teaches economics at the Louisiana Scholars’ College in Natchitoches, La., where he went to take a break from working in Moscow and Washington. But he fell in love and there he stayed. Now he teaches, takes pictures, and with wife Lisa raises two children. He’s a public employee who pays into his own pension and would love that sweet deal they have in Wisconsin. He did make more money in the private sector, but figures that if he doesn’t want to go back, he has no business complaining. He tweets and has a blog at pichtblog.blogspot.com.

Read more of Jim’s columns in Stimulus That! in The Washington Times Communities.

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Jim Picht

James Picht is the Senior Editor for Communities Politics and teaches economics and Russian at the Louisiana Scholars' College in Natchitoches, La. After earning his doctorate in economics, he spent several years working in Moscow and the new independent states of the former Soviet Union for the U.S. government, the Asian Development Bank, and as a private contractor. He returned to Ukraine recently to teach principles of constitutional law and criminal procedure at several Ukrainian law schools for a USAID legal development project. He has been writing at the Communities since 2009.

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