June 18, 2010

Federal Employees (Obedient Workers) are America's Protected Class

From federaljobs.net, "Chapter One, Introduction to Government Employment," we learn: "There are many reasons to consider federal employment. The average annual federal worker's pay plus benefits is $106,871 compared to $53,288 for the private sector. Student loan payoff, relocation, and cash incentives are now offered for hard-to-fill positions, and the benefits package is exceptional" -- by which they mean, "more than anybody makes in the private sector that you know, unless you are already rich, in which case you are not reading this, so it doesn't matter to you anyway, but you probably aren't, so it does." It's just too bad that government workers are a deadweight loss, as they produce no profit from their labors with which to pay their bloated salary and benefits packages, and they produce profit-lowering costs for those who must obey their commands, sort of a lose-lose situation. But then again, without them destroying the economy and the currency, we citizens could not make money by investing in gold and making a fortune when it soars as a result! - Government Gone Insane, Safehaven.com, January 16, 2009

Public Servants Live Better Than the Public, and Federal Pay Continues to Skyrocket

The Daily Bail
October 26, 2009

In 2008 the average federal worker earned twice that of his private-industry counterpart in wages and benefits: $120,000 per year versus $60,000.

Check out the difference in slope of the two lines. Yowza. Federal pay and benefits are up 58% since 2000 compared to just 28% in the private sector.

Of course, when you consider the massive productivity advantage government workers enjoy over their private counterparts, it all makes sense. WTF?

Well, it's all the Democrats fault undoubtedly. Wait, looks like it was Bush.
The George W. Bush years were very lucrative for federal workers. In 2000, the average compensation (wages and benefits) of federal workers was 66 percent higher than the average compensation in the U.S. private sector. The new data show that average federal compensation is now more than double the average in the private sector. In 2008, the average wage for 1.9 million federal civilian workers was $79,197, which compared to an average $50,028 for the nation’s 108 million private sector workers (measured in full-time equivalents). The federal pay advantage (the gap between the lines in the figure above) is steadily increasing. In 2008, federal worker compensation averaged a remarkable $119,982, which was more than double the private sector average of $59,909. - Chris Edwards, Federal Pay Continues Rapid Ascent, Cato Institute, August 24, 2009
If you drive through Northern Virginia, you will find nearly entire neighborhoods of $500,000 to $900,000 homes owned by government workers or contractors. Then you can drive five streets over and find $200,000 to $400,000 homes owned by those who pay the salaries for those government employees. It’s a fascinating distribution of wealth. Most government employees and contractors could not earn more than $60,000 on the free market. Their only chance to make that kind of money comes from having an employer that not only never has to make a profit but can forcibly take money through taxation.

The answer is that both are deeply to blame. Don't be fooled. There's nary a difference between Democrats and Republicans when it comes to growth of government. Both parties are completely, sadistically, out of control. There is NO spending restraint on either side of the aisle, just hot air, promises, and purple unicorns. Oh and bubbles.

The Annual Cost of U.S. Federal Government Civilian Employees

The federal government does not create a traditional sellable product and thus produces no revenue outside of what it collects from taxpayers. As of 2008, the average federal salary was $119,982, compared with $59,909 for the average private sector employee. In other words, the average federal bureaucrat makes twice as much as the average working taxpayer. Add the value of benefits like health care and pensions, and the gap grows even bigger. The average federal employee’s benefits add $40,785 to his annual total compensation, whereas the average working taxpayer’s benefits increase his total compensation by only $9,881. In other words, federal workers are paid on average salaries that are twice as generous as those in the private sector, and they receive benefits that are four times greater. - Brandon Greife, The Public Sector Weight Around Taxpayers’ Necks, RedStates.com, May 4, 2010

By David L, University and State
March 5, 2010

I was looking for a calculation of the current total annual cost of US federal government civilian employees to the US federal government and could not find it anywhere on the internet. Thus, I decided to calculate this cost for myself using publicly available labor and financial data.

I wanted to know this cost because any serious deficit reduction discussion must include a discussion of the total cost of federal employee compensation — in terms of benefits and wages and salaries — to taxpayers and whether this cost is justifiable. After all, in a normative sense, if any dollar of this cost is baseless, then at least some federal government civilian employees should get laid off or have their compensation reduced as a part of deficit reduction efforts. This post has nothing to do with whether federal government civilian employees in general make too much or too little, that is a separate topic.

Therefore, I am going to try to calculate the total compensation cost of an average non-US Postal Service civilian federal government employee to see how much civilian employees cost the federal government in total compensation every year.

My conclusion: There is an estimated annual cost of $259.3 billion, in current March 2010 dollars, to the federal government from civilian employee total compensation projected for the year 2010.

With Congressional Budget Office projected federal budget deficits of $1.3 trillion for FY2010 and roughly $1 trillion for FY2011, this means that even if we laid off all civilian federal government employees, which includes EVERYONE (the President and all of the Congress are included), not just civil servants, in all areas of the government, excluding the USPS, the US deficit would decrease by only one-fifth or one-fourth for either fiscal year, respectively.

My calculation assumptions and work are below.

According to the BLS:

The average civilian US federal government employee salary in 2008 was $74,403. We have to add non-salaried or non-wage compensation on top of this number, however, to find the cost of total compensation of per federal civilian employee. Unfortunately, I could not find a recent source on federal government non-salaried and non-wage compensation such as health insurance and pension benefits so I am going to use state and local government non-salaried and non-wage compensation (the synonym for this term is “benefits”) as a proxy.
As recently as DECEMBER 9, 2009 the BLS found:
State and local government compensation costs averaged $39.83 per hour worked. State and local government wages and salaries averaged $26.24 per hour (65.9 percent of total compensation), while benefits averaged $13.60 (34.1 percent). Among state and local government employees, average hourly compensation costs were higher for management, professional, and related occupations ($48.80) than for service occupations ($29.40) and sales and office occupations ($27.41). (See table 3.)
So let’s extrapolate the state and local government employee 34.1% number for non-salaried or non-wage benefits as a % of average total per-employee compensation to our average civilian federal government worker. It think that it is a safe assumption to assume that civilian federal government employees have a similar amount of compensation coming from benefits versus wages and salaries, but please contest my assumption here.

Assuming an average civilian federal government employee salary of $74,403 in 2008 and doing some algebra to figure out what it would mean for this to only be 65.9% of total 2008 compensation we find that X * .659 = 74,403 so X = $112,903 is the estimated total average compensation for each civilian federal government employee in 2008 (let’s assume this is January 2008, the beginning of the year). As a result, $38,500 is the benefits portion of this per average employee total compensation cost. It has been about 2.25 years since January 2008 so let’s factor in federal government employee compensation inflation to get the present value cost of your average civilian federal government employee.

In calendar year 2009, federal pay increased by 3.9% for civilian federal government employees. In calendar year 2010, pay increased by 2%.

I am going to assume this 3.9% increase for our wages and salaries inflation, however, to create a generous outer bound in our compensation cost estimate. For benefits, I could not find a good inflation proxy (please help me find a good one!), so I decided to just double the 3.9% rate (7.8%) to, again, give us a generous outer bound in compensation cost estimation.

Since the $74,403 wages and salaries number was about 2.25 years ago (remember, assuming the beginning of 2008) let’s multiple $74,403 * 1.039^2.25 to get the present value cost of per US civilian federal employee wages and salaries.

The answer is $74,403 * 1.039^2.25 = $81,092

Since the $38,500 number was about 2.25 years ago (again let’s assume this number is from January 2008) let’s multiple $38,500 * 1.078^2.25 to get the present value cost of per US civilian federal employee benefits.

The answer is $38,500*1.078^2.25 = $45,588

Thus, we have $45,588 + $81,092 = $126,680 for the average per US civilian federal worker total compensation cost.

The BLS found that in November 2008 there were 2,016,800 waged and salaried civilians (non-USPS) employed by the federal government. This includes 652,000 civilian employees working for the DOD. The BLS predicts that civilian waged and salaried employment by the federal government will increase by about 10% over the period of 2008-2018. That compounds out to about 1% annually. Assuming that this estimate took place about 1.5 years ago, we then calculate that there are about 2,016,800 * (1.01^1.5) = 2,047,128 civilian federal government employees as of March 2010.

Now, to get the total annual cost of these civilian federal government employees across all areas of government, let’s multiple the average federal government civilian employee compensation ($126,680) times the current number of federal government civilian employees (2,047,128). Thus, we get an estimated annual cost in current March 2010 dollars of $259,330,175,040 ($259.3 billion) to the federal government from civilian employee total compensation.

I believe that this compensation cost calculation is a generously high estimate for two reasons:
  1. I assume that my wages and salaries estimate is from January 2008, when it could be at any point in 2008 — based off the ambiguity in the related BLS data set. This means that my calculations could overstate the effects of inflation, overstating my total cost of compensation calculation as well.

  2. I assume a very high inflation rate for benefits (7.8%) and wages and salaries (3.9%) that is probably far higher than reality. I doubt average federal government employee benefits have increased at a rate of 7.8% over the last 2.25 years — the same goes for the 3.9% assumed growth rate of wages and salaries applied in my calculations over the last 2.25 years. Again, this means that I probably overstated the cost of compensation.
Therefore, my estimate here should be considered an upper bound estimate of the total cost of federal government employee compensation.

Advantages of Government Employment in the United States

Excerpt from America's Protected Class: The Excess Value of Public Employment (1994)

By The Public Purpose, Wendell Cox Consultancy
(c) 2002

Higher Public Compensation for the Same Work

Public employee compensation is often considerably above that of identical employment in the private sector. For example:

According to the AFL-CIO, It is not uncommon that work done by public employees can be done for as much as 50 percent less in the private sector.
Transit bus drivers who are public employees are often paid double and more that of private bus drivers employed providing transit service under contract to public agencies.

Average US Postal Service compensation per employee was nearly $45,000 in 1991--40 percent more than the average private employee. Yet, it would be expected that Postal employees would be paid less private employees, since the Postal Service has a lower percentage of supervisory, technical or professional employees than the private sector.

Often excessive public employee compensation is obtained through collective bargaining. In the public sector collective bargaining works particularly to the advantage of employees, because unlike the private sector, competitive forces do not operate. Moreover, the public sector collective bargaining often relies on data from the flawed comparability studies.

The Advantages of Public Employment

Public employment involves a number of advantages not considered in determining compensation. These include:

(1) More generous paid fringe benefits. Public employees have more generous non-wage employer paid benefits than private sector employees (Table #1).

(2) More Paid Vacation Days and Holidays: Public employees generally have more generous vacation and holiday benefits (Table #2)

The average state and local government employee has 9.9 more paid vacation and holidays annually than the average private employee. This is nearly one extra paid day off for each two days of paid leave for private employees.

The average federal civilian employee has 13 more paid vacation and holidays annually than the average private employee. This is more than three extra paid days off for each five days of paid leave for private employees.

Over the course of a career, state and local government employees and federal civilian employees receive nearly 1.5 years more in paid vacation and holidays than the average private employee.

(3) Federal Income Tax Free Value of Excess Paid Benefits: The more generous public employee fringe benefits are provided free from federal (and state) income taxes, expanding the gap between public and private fringe benefit values.

(4) Higher Compensation Increases. Protected from the cost controlling pressures of the competitive market, public employees have received larger annual compensation increases for decades. From 1951 to 1991, the average state and local government employees received $1.37 in compensation increases for every $1.00 received by the average private employee. Federal civilian employees received $1.91. Since 1980 the pace has increased with average state and local employees receiving $4.78 for each $1.00 received by private employees. Federal civilian employees received $4.98.

(5) Greater Job Security: Public employees have superior job security. Private employees have a far greater chance of being involuntarily terminated (laid off or discharged). On average, private employees are nearly three times as likely to lose their jobs than public employees. While superior job security is good for employees, it can only be achieved for some employees, not all. Public employee job security is paid for by private employees, who pay the overwhelming percentage of taxes.

(6) Lower Productivity: Productivity (both management and labor) is often lower in the public sector. Lower productivity means lower output per dollar of compensation -- higher unit labor costs. Higher unit labor costs represent a cost greater than necessary to obtain a public service.

America's Protected Class III estimated that state and local government employee counts could be reduced by 19.2 percent without reducing public services (this process is called "rightsizing"). This would require states and local governments to achieve the staffing levels of the state with the lowest number of state and local government employees per capita --- Pennsylvania (adjusted for population and geographical size). And even Pennsylvania has substantial potential to improve.

The rightsizing element of Clinton Administration's "Reinventing Government" program is intended to reduce the federal civilian work force by 12 percent without negatively impacting performance.

Many governments are using the competitive market to produce quality public services (competitive contracting) at substantial savings. Cost savings are typically in the 20 percent to 40 percent range with some instances of more 60 percent and more.

(7) More Paid Personal Days: Some public employers (including at least 20 states) provide additional paid "personal days" off for employees. On average, state and local government employees are eligible for paid personal days at a rate more than double that of private sector employees.

(8) More Other Paid Time Off: State and local government employees miss more days of work (such as sick days). While the percentage is small, state and local government employees are more than 30 percent more likely to be eligible for paid lunch breaks.

(9) Work Weeks with Fewer Hours: Some public employees (at least 10 states) have shorter work weeks than in the private sector.

(10) State Income Tax Free Value of Excess Paid Benefits: See #3, above. The more generous public employee fringe benefits are provided free from state (and federal) income taxes, expanding the gap between public and private fringe benefit values.

(11) Generous Severance Pay: Some government agencies provide particularly generous severance pay packages. Federal severance pay can equal two years of base salary. A particularly egregious example is an unfunded federal mandate that requires payment to public transit workers for up to six years after layoff.

(12) Earlier Retirement: Public employees are often able to retire with full benefits earlier than private employees. For example, more than 50 percent of state and local government employees are eligible to retire with full benefits when they have either reached 55 years of age or 30 years of service. Fewer than 10 percent of private employees are eligible to retire at age 55 or after 30 years of service.

(13) Unused Sick Leave Credit at Retirement: Some public employers permit employees to be paid for unused sick leave or to advance their retirement dates based upon unused sick leave. This is relatively in the private sector.

(14) Predominance of Defined Benefit Retirement Plans: Public employees are typically covered by expensive defined benefit retirement programs, while private employees are typically covered by less expensive defined contribution plans. Approximately 90 percent of state and local government employees are covered by "defined benefit" pension plans.

Defined contribution plans guarantee the retirement benefit amount, regardless of contributions and subsequent earnings. Defined benefit plans tend to be more expensive than defined contribution plans and can require "bail-outs" due to under-funding. Defined benefit financial commitments are "open-ended:"
Over the years many federal and postal employees have mistakenly believed that retirement benefits are directly linked to the contributions that were withdrawn from their checks and matched by their agency's contributions...Federal retirement benefits are secured by the political commitment of the federal government to honor its agreements with its retired employees.
Only 39 percent of private employees are covered by "defined benefit" plans. "Defined contribution" plans are used more frequently in the private sector. Under "defined contribution" plans the retirement benefit is based upon the contributions and subsequent earnings. The overwhelming majority of public employees are covered by the more expensive benefit plans. Defined benefit plans are beyond the resources of most private employers. Unlike public employers, private employers are unable to compel customers cover such expenses.

(15) More Pension Benefit Increases. More than 60 percent of state and local government retirees receive either automatic or "ad hoc" pension benefit increases. Approximately five percent of private sector retirees receive pension increases.

(16) Paid Retiree Health Care: Some public employers provide health insurance for retirees. The overwhelming majority of private employees do not receive this benefit.

(17) Exemption of Pension Benefits from State Income Taxes: In some states, federal and state government employees are exempt from paying state income taxes on their retirement income.

The Excess Value of Public Employment: Each of the factors above adds financial value to public employment relative to private employment. The impact of these advantages constitutes the excess value of public employment.

Excess Value of Public Employment

The excess value of public employment is the extent to which total public employee compensation exceeds the market rate for comparable employees who produce the same quantity and quality of work. The excess value of public employment is, for the economy and taxpayers, economic waste --- it is a cost that is higher than necessary to obtain public services (see Box #4: Excess Cost of Public Employment).

Accounting for the Excess Value of Public Employment

A valid comparison of public and private employee compensation must include the value of all compensation, including both wages and employer paid benefits. Adjustments can be made to account for some of the differences between private and public employee compensation. A model was developed to estimate the excess value. It is assumed that a private employee, state or local employee, and federal civilian employee begin a 40 year career at the same wage rate (the average private wage rate in 1991).

Accounting for Wages and Benefits per Hour Worked: Public employees tend to work fewer hours in exchange for more lucrative wages and benefits (Table #3). In the first year of employment, the effect of more lucrative employee benefits and greater paid time off converts into an advantage for the public employees.

The state or local government employee would receive 10.3 percent greater compensation than a private employee paid the same wage rate.

The federal civilian employee would receive 18.9 percent greater compensation than a private employee paid the same wage rate.

Over a 40 year career, the higher rate of public employee compensation increases would increase the gap.

The state or local government employee would receive 21.7 percent greater compensation than the private employee starting at the same wage rate. The public employee's compensation would exceed that of the private employee by $280,000.

The federal civilian employee would receive 35.0 percent greater compensation than the private employee starting at the same wage rate. The public employee's compensation would exceed that of the private employee by more than $450,000.

Are Government Workers Underpaid?
No. Once all promised benefits are included, government employees at all levels—local, state, and federal—receive significantly greater total compensation than private-sector workers.
Federal Pay Outpaces Private-Sector Pay
Furor over Government Employees
Federal pay ahead of private industry
Comparing Private Sector and Government Worker Salaries
The U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers--a difference of over 44 percent. This includes 35 percent higher wages and nearly 69 percent greater benefits.
Want a balanced federal budget? Cut state workers' pay
On average, state workers make $39.66 an hour, have traditional pensions untouched by stock market moves, and are laid off at one-third the rate of private-sector workers. Considering concerns about the federal budget, are government jobs too cushy?
Why Not Work for the Government? Federal Workers Make Twice As Much
Government Workers See Rise In Salaries To $72,000 Average
Those rich government workers
Federal Government Needs Massive Hiring Binge, Study Finds
Federal Gov't Needs To Hire Over 270,000 Workers In Next 3 Years For "Mission-Critical" Jobs
Federal Pay Continues to Skyrocket: Both Parties Are Out of Control
The Stimulus is Working!
Fourteen of the top federal agencies responsible for spending under the American Recovery and Reinvestment Act say they’ve hired about 3,000 workers with stimulus money. That’s helped fuel the continued growth of the federal government, which increased by more than 25,000 employees, or 1.3%, since December 2008, according to the latest quarterly report. During that time, the ranks of the nation’s unemployed increased by nearly 4 million, Labor Department statistics show. Overall, there are about 2 million federal workers, the data show.
Rethinking Salary Constructs, Federal Pay Continues To Skyrocket
Why Do Federal Workers Make Twice As Much As Private-Sector Workers?
The average federal worker makes $75,419 a year, while the average in the private sector is $39,751.
The Salaries of Federal Employees
Federal workers owe more than $3 billion in income taxes
Public Sector Unions and the Rising Costs of Employee Compensation
The Growing Gap between Govt and Private Sector Benefits
Public and Private Sector Compensation: What is Affordable in This Recession and Beyond?
Exploding Public Sector Pensions Myths: A Briefing for Trade Union Members Headlines about public sector pensions seem to have been appearing on a daily basis ever since the credit crunch started to bite. Attacks on pensions have been made by the Conservative Party, the Liberal Democrats and the CBI, alongside various newspaper and internet commentators. These attacks say that public sector workers are unfairly rewarded and benefiting from “gold plated” pay and pensions. They rightly identify a growing gap between public and private sector pensions caused by the employer retreat from decent pensions in the private sector, but wrongly conclude that the answer is to level down public sector pensions. They say that public sector workers should “share the pain” and that public sector pensions should be cut to the level of the private sector. Unions defend public sector pensions but not as a special case. We want to see everyone at work able to look forward to a decent pension when they retire.
The cost of local public-sector wages and benefits are becoming ummanageable
Public sector wages skew market
Against Public Sector Unions
The Enormous Cost of Public Unions
Public Sector Pay Outpaces Private Pay
Now, I Definitely Want A Job In Government
The Rising Cost of Public Sector Pensions and Other Post-Employment Benefits
Editorial: Earnings gap widens between private, govt. employees
The Living Wage Illusion
While the term “living wage” evokes sympathy and sounds innocuous, the real objective of the “living wage” in the eyes of organized labor is to use the coercive power of the government to unionize millions of new workers at the expense of the taxpayer and the American economy.
"Living Wage" Laws Kill Privatization
How to Convert a Deficit into a Tax Cut and “Pay Raise” for 440,000 Workers
Buffalo Niagara’s economy is in serious trouble because of high taxes. Personnel costs are a major component of government spending. Thus, to cut taxes, we must cut payroll. In this area, public employee compensation is substantially higher than private sector compensation and public sector compensation in other states. To redress this disparity and at the same time allow for tax cuts that will help revive the local economy, we propose a twenty percent, across-the-board reduction in public sector compensation. This proposal, combined with other budget cuts recently proposed by the Buffalo Niagara Partnership and Free Buffalo, will allow Erie County to balance its budget and even cut taxes. Niagara County could also measurably cut its taxes. In a broader sense, this proposal, if adopted by all municipalities in Buffalo Niagara and applied to tax cuts, will amount to the equivalent of a permanent pay raise for over 400,000 private sector workers in this area.
An In-Depth Look At The Michigan Health Benefits Program
The state of Michigan faces a severe budget crisis once again for the coming 2010 fiscal year—even considering federal stimulus money—and many of the state’s municipalities and school districts are fighting their own fiscal problems. The state’s budget situation has the potential to be even worse in 2011 when federal stimulus money in no longer available. The Dillon Prescription for Public-Sector Health Care Reform is one of many wide-ranging reforms that are needed to make Michigan a financially viable state once again. Total annual savings are estimated to reach $700 million to $900 million once fully implemented.
The Conspiracy Against the Taxpayers
For 50 years, public unions, health-care lobbyists, and social-services advocacy groups have doggedly been amassing power in state capitols and city halls, using their influence to inflate pay and benefits for their workers and to boost government spending. The bill for that influence is now coming due, and it is overwhelming state and local budgets.
Labour Market Effects of Public Sector Employment and Wages
Traditionally, macroeconomists have studied the aggregate effects of government spending in the form of goods bought to the private sector. However, the main element of government consumption is compensation to employees: it represents between 50 to 60% of final government consumption expenditures in most OECD countries. But public sector employment is not just an important aspect of fiscal policy, it is also a sizable element of the labour market. In OECD economies, public sector employment ranges from 7% to 30% of total employment. Given its relevance, it seems reasonable that part of the transmission mechanism of fiscal policy occurs through the labour market. Compared to the theoretical research that focusses on government spending as buying part of the production of the economy, the literature that studies the effects of public sector employment and wages is relatively scarce. Early references include Rotemberg and Woodford (1992) and Finn (1998) that find that, contrary to government purchases of goods and services, the purchase of hours raises real wages and reduces private output. More recently, Pappa (2005) and Cavallo (2005) also concluded that, in a perfectly competitive labour market, after an increase in government employment, private sector hours and output goes down. Ardagna (2007) and Algan, Cahuc, and Zylberberg (2002) study the issue in a unionized economy. In their setting, an increase in public sector employment, public sector wage or unemployment benefits, raises the wage in the private sector and therefore unemployment.
Targeting Public-Sector Unions
Unionized workers now account for 40 percent of state and local government's work force - as opposed to a mere 7.2 percent of the private-sector work force. As a result, cutting personnel costs at the state and local government levels means taking on unions. That doesn't mean it's time for the public sector to follow the lead of the private sector. In fact, the prescriptions being peddled to public-sector leaders would come with some dangerous side effects.
The need for transparency in public sector pensions in the UK, Canada and the US
Canada public sector pensions at all levels of government has liabilities of $513 Billion and the public sector plans have accumulated $323 Billion of assets to offset the cost of these liabilities, leaving a shortfall of $190 Billion. They have identified why public sector pensions plans have landed into the crisis that exists today. The government's pension assumptions show that the value of the liability of the plans as it exists today is 12% of GDP. A more accurate estimate based on the analysis of the report shows a true cost at 25% of GDP.

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