Free Markets, Free People

private sector


The Federal Government vs. the Private Sector: wages, benefits and total compensation

Reading over the CBO’s analysis and comparison of private sector wages vs. federal government wages revealed some interesting things.  The CBO broke down its comparison by education – or lack there of.

It seems that if you have a college degree or a professional degree, pay is about equal in the private and government sectors (although benefits are greater if you work for government).  If you have a PhD, you’re much better off in the private sector.

But, if you’re a high school grad or college drop out, the Fed is for you.

Wages:

Federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector.

Benefits:

Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.

Total compensation:

Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.

Now I note this for a very simple reason.  Who do you think is attracted to federal service vs. who do you think might seek employment first outside of federal service?  And what effect do these inflated wages and benefits have on the labor market?

It is sort of like the subsidy/tax question.  If you subsidized something you get what?  More of it.   If you tax it you usually get what?  Less of it.

Well, if you pay wages and benefits far above the market to a certain segment of the population, who are you likely to attract?

And are we necessarily best served by that?

I don’t have anything against high school grads.  I’m simply illustrating a point.  This isn’t a market driven phenomenon.  It is, however, something that will effect labor markets.  It is sort of the opposite of the Medicare problem in the health profession.  Medicare artificially bids down the price of health care to the point that as it continues to lower its payments, more and more health care providers refuse to take Medicare patients.

In this case we have government artificially bidding up the price of labor with arbitrary wage, benefit and total compensation numbers (they’re obviously not tied to private market compensation except somewhat in the case of college or professional degrees).  And, of course, you have to factor in government unions as big reason for this.

What it means is government will take potential workers from the market that might have worked in the private sector at a lower wage.  Now, certainly, there’s no shortage of labor at this point in our economy, however, you get the point.   If we were in such a place (you know, like a recovery with a rapidly expanding private sector?) then you’d have government bidding up wages artificially – and we all know what that means to consumers.  Higher prices.  And to potential employers – higher wages and benefits.

The result – well, probably reduced hiring.  Because any good business is going to do a cost-benefit analysis to determine whether the job they’re considering adding is worth the price they’ll have to pay in wages and benefits.   This is probably one of many factors, at this time, which point to the “no” button.

It is this sort of intrusion in markets (in hundreds of ways driven by government) that distorts them, artificially moves the equilibrium point and causes prices to rise and unemployment to stay high.

~McQ

Twitter: @McQandO


What part of “production” don’t these people get?

In today’s NY Times, Robert Schiller laments the lack of jobs brought by the “stimulus”.  Essentially, he posits, government focus is on the wrong thing.  Instead of boosting the GDP, the “stimulus” should be focused on creating jobs.  And where should government be focusing that effort?

Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?

Would this be an effective use of resources? From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous. (This is an example of an “externality,” which the market economy, left to its own devices, will neglect.)

The problem with this idea, of course, is nothing is really produced.  In fact, the focus on kicking up the GDP isn’t the wrong focus.  And trying to produce make-work jobs or “service” jobs don’t help with that.  They certainly would keep those who got the jobs busy, but a clean subway will not lead to more jobs elsewhere.

The tendency to think like this is apparent among a certain set who believe that spending money on jobs, whatever the sector and whatever the labor, make a difference.   A job is a job is a job.

But it isn’t.  Government jobs are not jobs that “produce wealth”.  They consume wealth.  And they don’t certainly don’t produce jobs that do produce wealth.

That comes in the private sector where people produce things – to include services – that other people want and that old “voluntary exchange of value between two people” takes place and produces wealth, which in turn kicks up the GDP.

It is wrong-headed to think the government can “stimulate” employment by employing people in non-productive, busy work jobs.

If government has a role in a recession or depression it should be to clear the way with less regulation and provide the incentives through tax breaks for businesses to hire and expand. 

What is hold all of this up at the moment is the unsettled tax picture and regulation regime as well as new legislation the business world is still trying to digest and pending legislation which would further complicate recovery.  It isn’t rocket science.  Until the marketplace is much more settled than it is now, no jobs are going to be created and now businesses are going to expand.

You can paint and clean all the subway systems in the US and it won’t make any difference.  The mid-term elections, however, may.  If the GOP takes the House and closes the gap in the Senate, you may start to see some hiring and some expansion, based on the belief that the worst is over  – governmentally that is – and perhaps it is now safe to begin the long, slow process of recovery.

~McQ

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There are jobs and then there are ‘jobs’

Some specifics about the record job losses:

Hiring last month in goods-producing industries fell by 276,000. Within this group, manufacturing firms cut 168,000 jobs bringing the total since the recession began to 1.3 million.

Construction employment was down 104,000 last month. The unemployment rate in that sector is now 21.4%, almost double where it was this time last year.

Service-sector employment tumbled 375,000. Business and professional services companies shed 180,000 jobs, the fourth-straight six-figure loss, and financial-sector payrolls were down 44,000.

Retail trade cut almost 40,000 jobs, while leisure and hospitality businesses shed 33,000 as households curtail nonessential spending.

Temporary employment, a leading indicator of future job prospects, fell by almost 80,000.

So there, in a nutshell, is the status of the productive sector of the economy – the sector that produces wealth, jobs and growth. The sector that should be the focus of any recovery plans and stimulus money.

Instead, what is the President talking about in Ohio, as he panders in the buckle of the rust belt (via email transcript)?

Today I’m pleased to announce that Attorney General Eric Holder and the Department of Justice are making available $2 billion in justice assistance grants from the recovery act. (Applause.) That’s funding that will help communities throughout America keep their neighborhoods safer, with more cops, more prosecutors, more probation officers, more radios and equipment, more help for crime victims, and more crime prevention programs for youth.

 Cities and states can apply for these funds right away, and as soon as those applications are received, the Justice Department will start getting the money out the door within 15 days. In Savannah, Georgia, the police department would use this funding to hire more crime and intelligence analysts and put more cops on the beat protecting our schools. In Long Beach, California, it will be able to help fund 17,000 hours of overtime for law enforcement officials who are needed in high-crime areas.

West Haven, Connecticut, will be able to restore crime prevention programs that were cut even though they improved the quality of life in the city’s most troubled neighborhoods. And the state of Iowa will be able to rehire drug enforcement officers and restart drug prevention programs that have been critical in fighting the crime and violence that plagues too many cities and too many towns.

So the list goes on and on. From Maine to San Francisco, from Colorado to New Jersey, these grants will put Americans to work doing the work necessary to keep America safe. They’ll be directed only towards worthy programs that have been carefully planned and proven to work. And Vice President Biden and I will be holding every state and community accountable for the tax dollars they spend.

More cops, more prosecutors, more parole officers.

Private sector jobs? Nada.

Now I understand we need all of those people he talks about. But they won’t help one bit in creating new wealth, new jobs or new opportunities for both, will they? They’re a number Obama can point too when he tries to sell is jobs “saved or created” nonsense in a few years. But as far as a stimulus to the economy – huh uh. What they are, however, are precisely what is expected from a big government liberal – government jobs.

As the WSJ further informs us after giving us the bad news about the productive sector of the economy above, “the government added 9,000 jobs.”

‘Nuff said.

~McQ

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