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Do Wisconsin's Workers Make Too Much?

The fight in Wisconsin is about power--the power to organize into unions and the power to influence politics. But it is also about money. If Republican governor Scott Walker weren’t claiming that the state’s public workers were wildly overpaid, and if a lot of people weren't inclined to believe him, his proposal to crush the state's public employee unions wouldn’t be on the verge of becoming law.

As an empirical matter, Walker’s claim seems suspect. A new paper by the Economic Policy Institute breaks down the numbers and finds that Wisconsin’s public workers are, if anything, underpaid relative to their private sector counterparts. Of course, Walker and his allies insist that the real problem is not so much wages as health benefits and pensions. But the researcher who wrote the EPI paper, Jeffrey Keefe of Rutgers University, considers that possibility. Although public employees may pay less for some benefits--in particular, their health insurance typically comes with lower premiums and cost-sharing--he argues they still fare no better than their private sector counterparts when it comes to total compensation.

Here's how Keefe's results look graphically, courtesy of economics blogger Menzie Chinn (h/t Michael Tomasky):

Am I certain Keefe is right? No. Having spent some time reporting on public and private sector compensation before, I can tell you that there is a lot of disagreement over the proper way to adjust the raw compensation figures to account for variables like age, education, and so on. (The debate is as much philosophical as methodological: Some conservatives argue that public employers put an artificial premium on graduate education, effectively paying more for degrees that don’t make workers better qualified.) I haven’t seen a specific refutation of Keefe’s report on Wisconsin, but if you want to read an analysis that suggests public workers, in general, are over-compensated, Andrew Biggs of the American Enterprise Institute has done work along those lines--and has a new article in the Weekly Standard summarizing his views.

But I wonder if this whole debate misses the point. Suppose public workers really do make more than private sector workers. Who’s to say that the problem is public workers making too much, rather than private sector workers making too little?

For example, according to official Labor Department statistics cited in a recent National Affairs article, the average salary for a janitor working in government as of 2005 was $23,700, or around $26,700 in today’s dollars, while the average salary for a janitor working in the private sector was $19,800, or around $22,326 in today’s dollars. But does that mean the woman cleaning toilets at a county courthouse was making too much? Or that the one cleaning toilets at a corporate office was making too little? Or look more closely at teachers. They make much better money than janitors, for sure. But they also make less than their peers in other countries, at a time when supposedly everybody agrees we need to improve public education.

Of course, you could argue that it’s beyond the ability of any one employer, including a public employer, to single-handedly raise compensation for low- and medium-income Americans--that such a change would require wholesale shifts in economic policy and/or increased government activism. I would agree with that argument, just as I would agree with those who say unions can be short-sighted or selfish--and that, in the current fiscal climate, public employees must make concessions. 

But, in the long run, we will never have an economy that distributes prosperity broadly without a strong labor movement. As Paul Krugman argues today,

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years--which it has--that’s to an important extent due to the decline of private-sector unions.

Rest assured: American will only become even more oligarchic, and less democratic, if public employee unions decline, too. 

Update: More on that EPI study from The Economist.