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It's fairly well known that the U.S. public sector is paid more than the private sector. What's less well known is that the gap between federal-employee pay and benefits and private-sector pay and benefits is increasing – by about 18% over the last decade.
Given the current level of U.S. unemployment and the size of the budget deficit, it would appear that some economies could be made. In short, it's time to tackle government pay.
After all, if Greece can economize, so can the United States…
The public-sector pay cuts Greece proposed to try and avoid bankruptcy are exceptionally wimpy: We're talking about salary reductions of only 1% and an extension of the retirement age from 61 to 63. The Greek government will need to do more than that if it wants to extract money out of Germany, where the retirement age was recently raised to 67 and taxpayers take a dim view of public-sector shenanigans.
Cutting public-sector pay used to be a tried-and-tested way of getting out of budgetary difficulties caused by recession – and it often worked exceptionally well.
In 1931, for instance, British Chancellor of the Exchequer Neville Chamberlain imposed a 10% pay cut on the British public services. His argument was twofold. First, prices had declined, so public-sector salaries should be brought down in line. And second, public-sector employees had job security – a benefit that private-sector workers don't enjoy, and an employment perk that's worth even more during a recession, when private-sector employees are getting sacked en masse.
The rather sophisticated understanding of option theory demonstrated by Chamberlain in that case contrasts markedly to the bumbling of his present-day successors!
Chamberlain's pay cuts caused a mutiny in the Royal Navy, but they worked. Unlike the United States, which sank further into the Great Depression, Britain had the best five economic growth years in its history from 1932-37, with that country's international-trade position recovering as rapidly as the living standards of its people. The elimination of about 10% of the government's costs – which otherwise would've served as additional dead weight on an already foundering economy – actually caused a negative "crowding out" effect, making capital available for investments in innovation and small businesses.
It wasn't what John Maynard Keynes would have recommended, but then Chamberlain thought Keynes was a charlatan.
The case for a Neville Chamberlain approach to U.S. public-sector pay and benefits is a strong one. In 1998, average wages and benefits for federal employees was 70% higher than in the private sector. Some of that may have been justified: Federal civil servants have, on average, better qualifications than private-sector workers, although there are fewer of them with the very highest qualifications.
By 2008, however, the total cost per civilian employee in the U.S. federal government had risen to $119,932, compared to $59,909 in the private sector. There can be no justification for paying federal employees twice the average private sector wage; the private sector, after all, has to pay the costs of employing all these overstuffed bureaucrats.
Even in state and local government, there is now a premium for wage costs over the private sector, though state-and-local government employees are, on average, less well- qualified than their private-sector counterparts.
There are some outrageous examples of feather bedding. Consider, for instance, the near-bankrupt state of California, which allows a worker to retire at 50 with an annual pension payout equal to 3% of salary for each year of service. In other words, a person who joined that state's workers ranks at 20 can retire at 50 on 90% of salary – indexed to inflation with full healthcare benefits, of course
And last year – in the depths of a horrid recession, and with states forced to make draconian cutbacks to balance their budgets – the remuneration of state-and-local-government employees increased 2.4%, double the 1.2% increase seen in the private sector.
Cutting federal employees back just to their 1998 levels in terms of what the rest of us earn would involve a 15% pay cut. That's a bit more than the 10% cut imposed by Chamberlain, but is certainly justified.
Based on 2008 figures, which must surely be conservative for 2010, given the recent growth in government, such a reduction would save $116 billion a year. That's the equivalent of about $1.3 trillion between now and 2020, a 10-year stretch that represents the normal budgetary horizon.
That doesn't eliminate the U.S. deficit problem, but it certainly makes a decent hole in it.
That's clear a government cutback I can go for…
[Editor's Note : Martin Hutchinson has terrific foresight. He warned investors about the dangers of credit-default swaps – half a year before those deadly derivatives ignited the worldwide financial firestorm. Hutchinson even predicted where and when the U.S. stock market would bottom (a feat that won him substantial public recognition).
During the stock-market rebound that started in mid-March, Hutchinson's calls on gold, commodities and high-yielding dividend stocks made winners of investors who took his advice.
Experts are taking notice. And so should you.
Hutchinson is now making those insights available to individual investors. His trading service, The Permanent Wealth Investor, combines high-yielding dividend stocks, gold and specially designated "Alpha-Bulldog" stocks into winning portfolios.
To find out more about The Permanent Wealth Investor, please just click here.]
News and Related Story Links:
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Neville Chamberlain - Google.com:
A Timeline of the Great Depression - Wikipedia:
Option Theory - The Royal Navy:
Official Web Site - InvestorWords.com:
Standard of Living - Wikipedia:
John Maynard Keynes
yeah ,this sounds like the normal reaction comming from money market sector, "bailout the banks who robbed and raped,then get it back by cutting middle class workers pay. GREAT IDEA YOU %^&$#@**&!
That is exactly what I wanted to say when I came to leave a comment. My wife works for the government and the exact job she does pays double in the private sector. This guy is a typical "business friendly a$$%&le".
Talk about bending historical facts to prove your point. Germany was on the move in Europe at this time. During the 1930's England was actually increasing its government spending in preparation for the coming war with Germany.
Hitler Germany was on the move in Europe at this time. During the 1930's England was actually increasing its government spending in preparation for the coming war with Germany. Keynes was right!
News Flash: Hitler Germany was paying for hard goods produced by the private sector. There is a huge difference between the production of hard goods and the reduction of resources to produce larger administration. Have you ever heard of businesses in a crashing economy retaining middle managers (administrators) because the glut of paper-pushers grows the business? NO. Hard goods and the maintenance thereof creates not only private sector growth and profits, but also creates multiple levels of government growth through newly formed and increasing revenue streams. News Flash 2: Hitler Germany's growth was also driven by Germany seizing the assets… Read more »
My comment is that the these stock traders who have pushed gasoline prices again thru the roof a gain in cost 2-3 weeks ago were at a so-called reasonalbe price @ $157.9 in the following 2-3 weeks it is a high so far to $2.75 a gallon and it more that likely go even higher as these profittears make it go even higher??? All this does it hurt the general public!! I know it is hurting myself terribily!! Myself am on a limited income of S.S. and a small pension and the govenment stopped any raises for the next 2… Read more »
Raymond, where were you buying gas 3 weeks ago for $1.57? Maybe your station is pricing it by the half gallon now! While it's true that gas has fluctuated unnaturally over the last 18 months, these conspiracy complaints only surface when it's up. No one seemed to be critical at the pump when oil was $32/barrel, but when it was $144/bbl there was a national outcry. Yet we must realize that it's not the price that causes the pain to our economy, it's the fluctuation, and not just the fluctuation up, but down as well. 77 to 32 hurts the… Read more »
Martin: One factor you have failed to take into account is that the Private Sector pays have been going down in the last decade – so obviously the gap between the Government pay scales and the private pay scales is widening. The main reason for the private sector pay going down is outsourcing. We are now competing with the salary scales of low-wage countries. The likes of Wal-Mart are creating jobs at minimum wages etc… I am not a government employee and have worked in the private sector all my life. So not to say that we shouldn't watch for… Read more »
Touche' PTS999, San and JC45. I find Martin Hutchison's libertarian comments to be uninformed and as JC45 hints there is no mention of the widening gap between workers and executives or in his words: "Mr. Hutchinson makes no mention of the real enemy of our economy, namely greedy CEO's and Corporations who cut wages and benefits, ship jobs overseas and give politicians legalized bribes (campaign contributions) to enact legislation for their own benefit, at the expense of all working families." Time for campaign reform!
Excellent information. How do we get it out to the public so they can see why our country is in the fix we are in?
THE FACTS ABOUT FEDERAL GOVERNMENT PAY Here is where the costs of Federal Employees have increased the most. You see, most professional Federal employees are paid according to the 2010 Base General Scale (GS) Pay Schedule, but the hourly wages are then adjusted up, according to location ("locality pay"). Additional pay adjustments above the base pay range from 14.16% to 35.15% of base salary. This often adds $5,000-$6000 dollars onto the base hourly wage which used to exist before President Obama. This is one big reason why a clerk-typist is paid about $40,000/ year or more in the Federal government.… Read more »
That would be for a GS-7 Step 7 clerk typist, or a GS-9 Step 1. Those aren't regular clerk/typists, which would probably be classified around a GS-5 ranging from $27k-$35k. Some start lower.
A GS-7 would be someone who had been around a long time and had some significant office management duties. A GS-9 would likely be supervising other clerks.
At any rate, that position is disappearing within government, and $30k-$40k is about what those folks earn in regular offices.
MASQUERADE
You, (above comment), are an imposter who evidently works for or is retired from the Federal Government. For the record, no one in my family has worked for the Federal government or collects Federal retirement. So, what's your game?
If District Clerks are indeed a fast disappearing position within (Federal) government, then chances are there are some other occupational titles and job series also headed for extinction. The likely reasons: budget cuts and redundancy (combining formerly separate offices or agencies), as well as contracting-out government functions formerly accomplished in-house.
I don't believe the public sector wages are generally higher than the private sector. Most of the government emploiyees have college degrees, so you can't compare their positions with only high school educated employees who work in the service sector. According to government data, the same positions in the private sector pay more, because the private can pay more for better talent. The public sector professional positions are capped per the legislative salaries, so government management definitely make less than private sector managers. This is probably justified since the government management is so horrible. Anyway, cutting government wages won't do… Read more »
Aren't you kind of generalizing? I took over a $60K paycut when I decided to come work for the government and my benefits are no better than they were in the private sector. And now we HAVE ALREADY taken paycuts with more on the way. Oh, and there is no retirement age because I don't get a pension.
It's time to go back to the private secter so I can actually earn enough money to live.
POLITICAL "REALITY" IS PERCEPTION ONLY Politics is all about making people "feel better", even if they are not actually better off objectively. So, cutting public sector wages/benefits would satisfy a constituency. However, I don't see it happening because the political influence of government worker unions is too entrenched in (democratic) party politics. However, if faced with a Greece-like financial crisis, then a future conservative president could issue an Executive Order (EO) cutting government salaries by a given percentage, subject to judicial review (where it might be sustained or overturned, in whole, or in part). Such a future president would need… Read more »
Why bother trying to reduce their outrageous salaries/benefits.Better to just eliminate their jobs and allow private sector bidding for those services.We can privatize education,libraries,fire depts,etc. and just about all inefficient,overpriced govt services.Competition will improve services and lower costs too.
You've got to be kidding. There is no "market" for trash collection, education, and libraries. Everyone wants those services, but no one wants to pay for them, and the most cost-effective and efficient way to have those services is for the government to organize them. The government funds contracts, so under your plan, you would at least need a lot more contracting officials. And then, when there is no public sector capacity, the private contractors will have the taxpayer over a barrel.
What an absolutely dumb remark and way of thinking.
Have you EVER studied anything in Economics?
Wy to balance up the article do not mention the disproportionate bonuses and salaries of CEOs in the private sector ?
Hutchinsong's paper is slanted.
Mr. Hutchinson should stick to writing about things that he knows something about! He should also stop "cherry picking" a few selected examples and using these to misinform the public and get people angry, thereby diverting their attention away from the REAL problems of our economy (as described by the comments of "PTS999"). Public sector employees are always a convenient scapegoat. "PTS999" and "Sam's" comments state things correctly. I happen to be a State Employee in Wisconsin, with a Masters Degree that is required for my job, and have been with the State for 28 years. A college friend of… Read more »
Everyone has an off day, I suppose. Mr. Hutchison's came when proper research was needed.
I forgot to mention in my earlier comments that here in Wisconsin, state employees are taking a pay cut during 2009 – 2010. And, we have had to pay an increasing share of health insurance costs each year for the last several years. We are also facing the very real possibility of no pay increases and/or more pay cuts for 2011 – 2012, in addition to more layoffs. The point is, we are sharing in the pain of this recession, as are private sector employees! That's why I don't appreciate people like Mr. Hutchinson writing inaccurate articles that lead the… Read more »
This article does not apply most State Employees. In my "government" office it's generally known that salaries are BETTER in the private sector for equivalent positions. For most of my 15 years with government I have watched several colleagues leave for better paying private sector jobs and I have NEVER heard of private sector employee who came to my office for a pay increase from an equivalent private sector job. In addition, I have taken a pay freeze over last 18 months and forced unpaid furloughs (another 5% cut). My retirement package is about half of California (if this article… Read more »
regardless of private vs public pay, the simple and completely obvious fact is that we cannot afford the government we have. we cannot reuce government without cutting everything; including both entitlements and government services and positions and/or pay that goes with the services. for recipients of entitlements, copays have to get bigger and social security has to kick in later. in defense, without hurting our capabilities we can rpobably shut down most overseas bases and many domestic bases, and slow new weapons system procurement (which has already happened). on a smaller scale we need to drop programs like rural electrification… Read more »
Being a 59yr old State of California employee that has only 19yrs of service, when I retire at age 62 Iknow that I'm going to recieve 53% of my current pay. What you have stated here is what Sworn Peace Officers may recieve-not what I can get. By the way,for my job,I get a salary that equates to about 25.00. I work with outside private sector people in the same job classification that earn 38.00/hr.Funny thing -they have the same benefits that I do except for holidays.Bottom line is don,t equate the average working stiff like me with those public… Read more »
MARTIN HUTCHINSON does not have insight. Absolute hogwash. He compares apples and oranges when it comes to federal salaries. He does not compare similar jobs in the private sector with similar jobs in the public sector. Over 51% percent of federal employees have college degrees vs 38% in the private sector. Over 20% of federal employees have advanced degrees vs less than 15% in the private sector. When comparing similar positions in the private sector, with similar positions in the public sector, he will quickly discover that the federal employee makes 26% less. The federal employee is more educated with… Read more »
I am SO tired of this argument, which is complete FALLACY. I have a law degree and two bar licenses, and I too took a significant pay cut when I entered the Federal government. I now make at LEAST $50k less than my AVERAGE counterparts in the private sector. I took the Federal job for the security, benefits, and work-life balance. Well, there is little work-life balance in a job of my caliber, although I do appreciate the security and most of the benefits. There are lots of things I don't have, however, including paid maternity leave and/or short-term disability… Read more »
Back when I was in school 3 times 20 was 60, not 90. I have one suggestion, when comparing salaries, try comparing jobs at the same time. For example, look at the number of minimum wage jobs in the private sector compared to those in the government. Also, look at the number of college degrees in the public sector compared to those in the private sector.
Martin Hutchinson must be writting from Mars. He provides no facts just fiction regarding federal employee pay.
I've left a comment before on this topic and this #$% Editor doesn't know his brain from his @$$ because had he done his research, he would know Federal Employees are paid LESS than private sector. Maybe his job should be abolished or his salary cut 15% so he can understand the impact on doing that to even one person. The American people just need to unelect those in office – both sides and start over. Choose a Constitutionalist or Independent who will secure our borders so illegals do not come in and milk our system. Get us out of… Read more »
I think it would be more accurate to compare government salaries to private saleries for like work rather than just average salary. For instance, career government execs get payed $175k a year. How much would they get payed in the private sector? Half a million? Remeber also, the government contracts out what would be the lower-paying jobs in the private sector, and it's doubtful that those contractors' salaries are figured into the equation. Simple (non-fuzzy) math would show that if you knock off the lower end of your salaries, it will push the average up and skew the numbers. If… Read more »
Martin Hutchinson is wall street's concubine. Enough said.
What do they expect the federal salaries to look like? Lets compare apples to apples?? Look at how much is contracted out? Let's remember that it was decided long ago to contract out all the Blue Collar Operations and Maintenance type positions (janitors, lawn services, technicians, mechanics, plumbers, electricians, carpenters, drafters, painters, workers, helpers). So it's no wonder the numbers look inflated. BS that's all it is. This guy should go back and take out all the blue collar positions from his private sector calculations and run White Collar to White Collar public and private comparisons.
The author and the editors are recklessly irresponsible. He makes one true statement in the articleabout the current Federal workforce – "Federal civil servants have, on average, better qualifications than private-sector workers…" But he doesn't carry that to its logical and factual conclusion – Federal civil servants are largely in categories of professions, e.g., doctors, scientists, lawyers, accountants, etc. There are entry level and service employees in the Federal workforce but in a far lesser percentage than in the private sector. When the TOTAL public sector workforce compensation is compared to the TOTAL private sector workforce compensation I am not… Read more »
I am a federal employee, and I don't mind doing my part, but remember this. I'm an attorney, and attorneys at my level in private practice make almost double what I do for the same work. When the economy was going great, the attorneys in private practice who won big cases got were getting annual bonuses in the tens of thousands of dollars. I won a big case and got a bonus of $1000. It's not just attorneys, there are Forest Service firefighters dying for not much more than minimum wage, but unlike state or private firefighters, they are laid… Read more »
Where do these people get that the government employees are paid so much. Believe me I am not one of those people. With the increase in insurance, I am actually going backward already and if I took a cut in pay like what you are talking about, I would lose everything – just barely making $40k and it has taken over 5 years to get there. So back off the across the board talk about government salaries.
I have to agree with the previous responses to the B.S. of the article. There may be a few to many layers in managerial positions but this is like the tortis and the hair. Take a gov. job for less for the sake of security in the end and get bashed by the hair who takes everthing they can get as fast as they can and then whinning when things are a little down for them. TO MUCH GOVERNMENT, far right far left all being bought by the PRIVATE SECTOR. The average gov. employee is dedicated to a carreer and… Read more »
The real problem is the deflation of wages in the private sector, thanks to short-sighted capitalists who ship manufacturing jobs out of the country. A well-paid middle class with job security would solve the deficit problem, by increased tax revenues. It would also have averted the recession because a middle class with money to spend would keep the retail sector in business. This would increase demand for products, which would increase hiring in the manufacturing sector. We need to bring our manufacturing jobs back home!
MONEY MORNING READERS LIFT A LEG Sure appears many of the comments on this site and similar internet blogs are intended to deride the author, or just as often, another reader who's reply(s) do not sit well with them. Various tactics are employed by reader's who post as an alternative to leaving their urine on the local fire hydrant, such as sarcasm or uninformed comments of a personal nature. No doubt many of these same readers here lack a sophisticated understanding of the subject due to organic brain damage, dementia, or autism. Perhaps they are so young as to have… Read more »
The above articles skirt the base issue in my opinion. What I want to address is the basic concept that man tends toward being lazy. When the principal of "No Work – No Eat" is ignored by people and their elected government…this is the beginning of a financial collapse, because people want a "free lunch" or "free ride" on someone else's work. A fundamental error was made when "everyone" was given the "right to vote"… as our population of "nonproductive" people has EXPLODED, (3 generations on welfare, millions in prison, guards, lawyers, police, government employees, investors, etc..), so has their… Read more »
Ethan,
I think if you recheck your facts you will find that the UK and the USSR fell from power BECAUSE they spent all of their money on a "strong military". But you are right about America being on the same path. We spend as much on our military as the rest of the world combined. With all that military might we just can't find any right-wingers who think we should waste it by keeping it at home. Therein lies our major problem.
How about bringing our young men and women home from Iraq and Afghanistan instead? You could give feds a payraise, rebuild the ailing infrastructure and have money left over.
Not all federal employees are so highly paid. Personal observations from my years in the private sector are that former colleagues make considerably more than I do and are eligible for bonuses far greater than what is available to us. As an hourly employee, I was eligible for employee stock options; there's nothing like that here. Anyone who would seriously consider cutting federal pay across the whole of the workforce should consider the impacts to businesses in local (often rural) communities and to housing markets. Imagine what the effect over the Washington DC commuting area would be if tens of… Read more »
I'd like to know the source of Mr. Hutchinson's data to check the facts, but even without that information I'm quite sure the number of government employees is increasing while private sector jobs are being lost. Let's not forget that the entire government is a drag on the economy because they produce nothing – no goods or services that could be considered part of our gross domestice product. They are simply there to administer the spending of our tax dollars. The entire government shows up on the expense side of the US ledger. What happens to companies (or families for… Read more »
It is that how your look at it.
It is work-compensation balance.
Martin, You are at it again! Speaking through your hat! Stick to money making / investments and you make sense. The moment you talk economics and policy you start to blunder. No recession has ever been overcome by "Cutting public-sector pay used to be a tried-and-tested way of getting out of budgetary difficulties caused by recession." Thats the village witch doctor peddling cabbage soup to cure cancer. Read your Economics 101 texts more thoroughly. Also, read Adam Smith more carefully. I would have liked to suggest that you read Keynes in your spare time – but I will desist. Do… Read more »