Free Markets, Free People

compensation


China’s effrontery knows no bounds

You are all familiar with the killer earthquake that occurred in New Zealand recently.  During that disaster, 70 international students at the King’s English Language School, along with 10 staff, lost their lives.  Among the dead were 7 Chinese students.

You’ll never guess why China is now demanding increased compensation for its dead students:

Chinese officials have requested extra compensation for the families of Chinese students killed by the Christchurch earthquake. They say China’s one-child policy means the families will face long-term economic hardship.

In a Radio New Zealand interview this morning, Cheng Lee, head of the Chinese Embassy’s disaster relief efforts, explained that China’s situation was very unusual due to the fact that, under Chinese law, families could only have one child per couple.

Mr Cheng believes the Chinese families deserve special consideration and should be given economic assistance above what’s available under New Zealand’s Accident Compensation Corporation (ACC) payments. Mr Cheng said: "There is a very notable difference in terms of the family situation between the Chinese family members and other foreign family members. You can expect how lonely, how desperate they are, not only from losing loved ones, but losing almost entirely their source of economic assistance after retirement."

So here’s a summary of the thinking as presented by Mr. Cheng – Since China unilaterally and by force restricted its population to one child per family and subsequently since in the case of the disaster in NZ, some of those children were killed, creating a hardship for the families, it is the responsibility of the government of New Zealand to up its compensation to the Chinese families (over and above what it pays others) because of the consequences of the Chinese law.

A pretty absurd claim wouldn’t you say?  And the claim also implies that the Chinese student’s lives were more valuable than those of the others that were killed  – again, the supposed value based in a law which restricted parents to one child.

Mr Joyce said that with all the investigations currently underway it was too soon to say if special compensation might be available for any of the victims’ families.

Really?  The fact that NZ is even entertaining the idea for the reasons given are astounding.  If China believes what it is claiming – i.e. that because of the policy of one child per family, the families effected have a particularly tough road ahead of them financially – then it should be compensating the parents for the consequences of its policy, not New Zealand.

~McQ


Federal government employee compensation v. comparable private sector compensation

Are federal employees compensated better than comparable private sector employees?

Andrew Biggs an economist with the American Enterprise Institute, and Jason Richwine, an economist with the Heritage Foundation, have conducted a study which finds that yes, indeed they are. And, in fact, by quite a bit. In a conference call they outlined their methodology (you can find it in detail here in the study).

You may find their conclusions a bit startling but probably unsurprising.  Biggs and Richwine compared three areas between federal government employees and comparable private sector employees: Salaries, benefits and job security.

Salaries:

Biggs and Richwine found that on average (using the Human Capital Model which is a widely accepted model for such studies) federal government employees enjoyed a 14% salary premium over private employees at the same level.  The primary reason they found is federal employees are, on average, promoted more quickly in their jobs meaning at a comparable level with private sector employees they are usually less skilled and less experienced. 

Benefits:

In terms of benefits, they found that private sector benefits in large private corporations (500+) averaged about 50% of salary.  Federal workers enjoyed a significant advantage here, with an average of 66% of salary added in benefits.  For instance, federal employees enjoyed significantly more paid time off than do private sector types (25%).  Additionally, employee contributions to retirement are 3 times that of private sector employees.  Bottom line: federal employees enjoy a 33% premium over private employees.

Job Security:

This measures the probability of becoming unemployed.  Federal employees are much less likely to be laid off than are private sector employees.  The study calculated an 11% premium here.  Said another way, if a private sector employee was asked if he would take a 10% pay cut to be guaranteed employment no matter what, almost all would take it.

Adding all of that up (14% salary premium, 33% benefits premium and 11% job security premium) and weighting them properly, the total pay package including those three elements provides federal employees with a 39% premium over private sector employees in comparable positions.

The important question?  How much is that difference worth in tax payer dollars?  The market value of the difference is $60 billion dollars – a year.

Obviously what isn’t going to happen (reality in politics alert) is a $60 billion dollar reduction in pay and benefits.  Or layoffs to balance it out. 

But what can be planned is bringing federal compensation in line with private compensation on an apples to apples basis and eliminating that gap.

We all know how popular that will be right? Especially with the government unions (who’ve once again negotiated sweetheart deals with compliant politicians).  But this is a nice chunk that can at least be eliminated at a future date through wage and benefit parity.  Of course that means really freezing wages, rolling back benefit contributions and other unpopular fixes.

Biggs and Richwine will be testifying at a House Oversight Committee hearing on federal employee pay.  Any bets on whether or not the final verdict of the committee isn’t to kick the can down the road again and leave the problem for others?

~McQ


The market speaks: doctors increasingly turning down new Medicare patients

USA Today brings us a story that should surprise no one. Medicare, the supposed model of a government run health care system, is finding that fewer and fewer doctors are willing to take on new patients under that system. They cite the low payments Medicare offers (or perhaps forces) for patient treatment. Baby boomers just now entering the system are going to find their choice of a doctor restricted.

The numbers break down like this:

• The American Academy of Family Physicians says 13% of respondents didn’t participate in Medicare last year, up from 8% in 2008 and 6% in 2004.

• The American Osteopathic Association says 15% of its members don’t participate in Medicare and 19% don’t accept new Medicare patients. If the cut is not reversed, it says, the numbers will double.

• The American Medical Association says 17% of more than 9,000 doctors surveyed restrict the number of Medicare patients in their practice. Among primary care physicians, the rate is 31%.

Note especially that final group. Primary care physicians are the group of physicians that the newly passed health care reform law depends on to implement its “preventive care” regime.

The reason is rather simple and straight forward – Medicare offers 78% of what private insurance pays in compensation for a doctor’s services. Why doctors are leaving or restricting new Medicare patients is rather easy to understand as well:

“Physicians are saying, ‘I can’t afford to keep losing money,’ ” says Lori Heim, president of the family doctors’ group.

Consequently they cut or drastically restrict the source of the loss. While most doctors are not going to turn away existing Medicare patients, they may not accept new ones and finally, through attrition, close their practice to Medicare patients.

It isn’t rocket science – no good businessman is going to continue to do things in which the net result is a loss of money. And a doctor’s private practice is a business – one which employs a number of people. He or she, like any business person running a small business, cannot afford the losses. So they identify the problem and eliminate it.

As this continues it will put them in a direct confrontation with the federal government. It is anyone’s guess, given the current administration’s choices for wielding power, how that will turn out. But what this rejection of the compensation offered by government is doing is bringing to the fore is one of the underlying conflicts of the new health care law – the premise of the law is that government can control costs (and payments) and thereby make medical care less costly. The doctors are saying, go for it, but I’m not playing.

At some point, government is going to have too address those who make that declaration. We’ll then see how free of a country we really are, won’t we?

~McQ