Government Workers and Fiscal Problems-Becker

Posner’s results are consistent with findings of little connection among the richer countries between their per capita incomes and the share of incomes spent by the government. Unfortunately, causation is hard to determine from such regressions. For example, as Scandinavian countries got richer, they raised government employment, partly by taking over much of the child-care services traditionally supplied by families. This helps explain why women in Scandinavia are much more likely than men to work for the government. A further problem with using government employment as a measure of government’s impact on an economy is that many regulatory agencies, such as the EPA (Environmental Protection Agency), the Fed and other central banks, and labor departments often have large effects on an economy through regulations that require few employees.

Public employees in Greece, Italy, in state and local governments of the United States, and government workers elsewhere are in the news in recent months not so much because of links to productivity, but rather because of connections to fiscal difficulties. Private companies typically adjust to financial problems partly by reducing employment and earnings of their employees, although such adjustments are harder in countries with strong unions and stringent labor protection legislation.

Both employment and wage adjustments are much harder for governments in difficult fiscal situations. Many of their employees are protected from being laid off by union contracts and civil service rights. It is also usually extremely difficult to cut their earnings, again partly due to restrictions imposed by unions and government rules. Government workers also take many of their benefits in the form of early retirements, and generous health benefits and incomes after retirement. These inflate current government spending when many past employees are receiving retirement benefits. In addition, as Posner indicates, votes of government employees can influence election outcomes if they are aroused by what they perceive to be unfair treatment from an incumbent political party.

Government workers in countries like Greece and Italy frequently retire in their fifties after only 20 or 25 years of government employment, while private sector employees are more likely to work into their sixties. Yet, even though they have generous retirement benefits as well as early retirements, their salaries are on a par with or exceed those of comparable private sector workers. This explains not only why lay off rates are low among government workers, but also why quit rates are lower than in the private sector. Why quit a government job if one is likely to earn less, and have less generous benefits, when working for private employers?

These benefits of government employment may be tolerable, and also extremely difficult to reduce, when economies are growing robustly, and government tax receipts are in balance with government spending. But they become a serious problem when tax receipts fall in a recession, and governments begin to run sizable deficits, and have problems funding their domestic, and especially their foreign, debt. Governments then come under pressure to cut spending, including spending on employees. Yet this adjustment is hard when government workers make up a sizable fraction of all workers-their share is over 20% in Greece- and when many government employees have tenure, fixed wages, and generous retirement benefits.

The state of California hired many employees and paid them well while times were good during most of the period from 1990-2007. Then the Great Recession led to huge holes in the state’s budget, which in turn forced confrontations with teachers and other unions as California tries to bring its bloated spending in line with sharply reduced revenues. A liberal Democratic recently elected mayor of Chicago, Rahm Emmanuel, has been staring down the teachers union (and other government unions) as he tries to get teachers and other government employes to work longer hours as he confronts a very serious budget deficit.

Greece’s problems are well chronicled: it borrowed heavily from French, German, and other banks during the good times of the early 2000s when its government ran sizable (although disguised) deficits. Greece is now under pressure to cut government spending during what will be a prolonged austerity period as it adjusts to the new economic realities. The government’s overpaying of employees is not the only problem it faces, but this is surely a significant one.

I have no doubt that for various reasons government employees are on average less efficient than private sector workers doing comparable work. Yet since many other variables are also important I am not surprised that correlations are weak between the share of workers employed by the government and income per capita, or even with the growth in per capita incomes. Nevertheless, overpaid and underperforming government employees are a drag on productivity, and especially on fiscal outlooks when economies are weaker. This helps explain why many state and local governments of the US, and governments in countries like Greece, are encountering serious obstacles to improving their fiscal houses as they respond to the Great Recession.

Comments

[NEH]

Jack, I think the author was speaking to just that issue. As for Scandinavia being "Socialist" that's a bit of a stretch. Although, I agree that they are much more socially aware and have much more advanced social programs that appear to be functional. Unlike the U.S. ...

[Jack]

NEH........ yeah, that's why I too used quotes around the word. Ha! in terms of total bill for taxes and 17% GDP for "H/C" (for some) plus state and local we're at least equally "socialist" in dollar terms with far fewer services.

But (drum roll) we ARE the best!

[Jack]

How about discussing this topical article?

Something’s Happening Here
By THOMAS L. FRIEDMAN
When you see spontaneous social protests erupting from Tunisia to Tel Aviv to Wall Street it’s clear that something is happening globally that needs defining. There are two unified theories out there that intrigue me. One says this is the start of “The Great Disruption.” The other says that this is all part of “The Big Shift.” You decide.

Paul Gilding, the Australian environmentalist and author of the book “The Great Disruption,” argues that these demonstrations are a sign that the current growth-obsessed capitalist system is reaching its financial and ecological limits. “I look at the world as an integrated system, so I don’t see these protests, or the debt crisis, or inequality, or the economy, or the climate going weird, in isolation — I see our system in the painful process of breaking down,” which is what he means by the Great Disruption, said Gilding. “Our system of economic growth, of ineffective democracy, of overloading planet earth — our system — is eating itself alive. Occupy Wall Street is like the kid in the fairy story saying what everyone knows but is afraid to say: the emperor has no clothes. The system is broken. Think about the promise of global market capitalism. If we let the system work, if we let the rich get richer, if we let corporations focus on profit, if we let pollution go unpriced and unchecked, then we will all be better off. It may not be equally distributed, but the poor will get less poor, those who work hard will get jobs, those who study hard will get better jobs and we’ll have enough wealth to fix the environment.

“What we now have — most extremely in the U.S. but pretty much everywhere — is the mother of all broken promises,” Gilding adds. “Yes, the rich are getting richer and the corporations are making profits — with their executives richly rewarded. But, meanwhile, the people are getting worse off — drowning in housing debt and/or tuition debt — many who worked hard are unemployed; many who studied hard are unable to get good work; the environment is getting more and more damaged; and people are realizing their kids will be even worse off than they are. This particular round of protests may build or may not, but what will not go away is the broad coalition of those to whom the system lied and who have now woken up. It’s not just the environmentalists, or the poor, or the unemployed. It’s most people, including the highly educated middle class, who are feeling the results of a system that saw all the growth of the last three decades go to the top 1 percent.”

Not so fast, says John Hagel III, who is the co-chairman of the Center for the Edge at Deloitte, along with John Seely Brown. In their recent book, “The Power of Pull,” they suggest that we’re in the early stages of a “Big Shift,” precipitated by the merging of globalization and the Information Technology Revolution. In the early stages, we experience this Big Shift as mounting pressure, deteriorating performance and growing stress because we continue to operate with institutions and practices that are increasingly dysfunctional — so the eruption of protest movements is no surprise.

Yet, the Big Shift also unleashes a huge global flow of ideas, innovations, new collaborative possibilities and new market opportunities. This flow is constantly getting richer and faster. Today, they argue, tapping the global flow becomes the key to productivity, growth and prosperity. But to tap this flow effectively, every country, company and individual needs to be constantly growing their talents.

“We are living in a world where flow will prevail and topple any obstacles in its way,” says Hagel. “As flow gains momentum, it undermines the precious knowledge stocks that in the past gave us security and wealth. It calls on us to learn faster by working together and to pull out of ourselves more of our true potential, both individually and collectively. It excites us with the possibilities that can only be realized by participating in a broader range of flows. That is the essence of the Big Shift.”

Yes, corporations now have access to more cheap software, robots, automation, labor and genius than ever. So holding a job takes more talent. But the flip side is that individuals — individuals — anywhere can now access the flow to take online courses at Stanford from a village in Africa, to start a new company with customers everywhere or to collaborate with people anywhere. We have more big problems than ever and more problem-solvers than ever.

So there you have it: Two master narratives — one threat-based, one opportunity-based, but both involving seismic changes. Gilding is actually an optimist at heart. He believes that while the Great Disruption is inevitable, humanity is best in a crisis, and, once it all hits, we will rise to the occasion and produce transformational economic and social change (using tools of the Big Shift). Hagel is also an optimist. He knows the Great Disruption may be barreling down on us, but he believes that the Big Shift has also created a world where more people than ever have the tools, talents and potential to head it off. My heart is with Hagel, but my head says that you ignore Gilding at your peril.

You decide.

[NEH]

Jack, "We ARE the best"? I hope you're being facetious. If we are, then there is no reason too do anything, except let the "dogmas of the quiet past" carry us into an unknown and less than rationally controlled future.

As for the second response, it looks as if the works of the Futurists Alvin and Heidi Toffler are beginning to go mainstream. Some of their seminal works: "Future Shock", "The Third Wave", "Power Shift: Knowledge, Wealth, and Violence at the Edge of the 21st Century" and "Revolutionary Wealth" has picked up some cachet and validity given the "Crises" we are experiencing as of late.

Perhaps, the is some truth to the theory of "Sociopolitico Economic Waves". As the Tofflers have put it, "well, we have come through the First Wave, through the Second Wave, and are now well into the Third Wave". Whether this third wave carries us into a bright and shining New Age or drags us into the Abyss of a "Brave New World" only time will tell, but let's keep our fingers crossed and take the necessary rational actions to guarantee that we end up at the destination of the bright and shining New Age instead of driving our jalopies over the edge into the Abyss...

[NEH]

Oh, BTW, I forgot to add the theory of Kondratiev Waves (of which the Tofflers seem to have picked up on), the various variations on the theme and it's consequent pickup by Joseph Schumpeter that colored a lot of his work. Not too mention it's minimalization by most mainstream Economists today.

[Supra Footwear]

The greatness of Rome... another society where the very few lived well at great expense to their slaves.

Using slavery and profiting by slave wages

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thnaks

[Jack]

This all calls for a longer discussion. I read all of Toffler 'back then" but admit I had to go Wiki to remind myself of his theories.

Seems today, a lot of "pop" names for "things" like "post-industrial" though today we mfg much more than then, albeit with far fewer employees that, I should add, are still getting a much thinner slice of the pie than did their parents.

Mass produced? vs customization? Well, the net in some ways has lived up to its promise -- I can shop for a (kinda) custom shirt or suit or reach out for a tail light for my 1937 Super-charged, front wheel drive Cord. But? we've not only the standardization of McD's but a host of others going well up into the fine dining level.

I'd think Toffler would haves expected all these means of bottom up communication (no more of Reagan shouting down a protester with "I PAID for this mic...." with all the bloggers, tweeters and cams without which Rodney King's laments of police brutality would be just another "Saturday nite thing.."

Still, and not to pick only on the Repub attempt to find a viable candidate, what we're seeing is largely pap ginned up in the, formerly smoke filled rooms where bundles of millions can the raised over-nite to spew propaganda coast to coast and if need be narrow cast it to solicit the appearance of grassroots support in a particular locality.

But.... is the debate any better, or is democracy (the republic if you prefer) better served? Can spewing poll tested sound bites with the partisan power of $10 million media buys begin to match Lincoln and Douglas debating for days on a platform built by the community?

Well....... it's tough to even critique the future seers like Tofflers, much less refute whatever it was they were saying, but that made for good reading and ruminating at the time.

............ some things are as puzzling as why our Profs have a short time limit on constructing a post.

[NEH]

As for new commentary, they are some of the Luminaries of our age and their opionions are held in high esteem by those of greater import than students. Especially given these Crises we are currently trying to survive. Or it could just be "Fall Break". ;)

As for the Tofflers, they seem to have a more accurate "Crystal Ball" than most who profess to be versed in Futureology.

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Jack, Yep. It's the dichotomy that exists. On the one side of the coin, there's the "Public Value" and the other "Private Value". As an ancient Roman once put it, "The reason Rome is great, is that the true Roman believes in Public Magnificence and Private austerity". Something we could do well too learn today...

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Having higher numbers of occupants per existing structure doesn't bode well for selling off the homes having fallen or about to fall into the laps of bankers.All of the sci-fi stories pointed to a shorter work week, more leisure time and industries developing around increased leisure time coupled with the income to enjoy it. We have nothing like that in place or even in mind. Instead those desperate for any kind of job are to work longer hours for less pay and be appreciative for their opportunity.

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Having higher numbers of occupants per existing structure doesn't bode well for selling off the homes having fallen or about to fall into the laps of bankers.All of the sci-fi stories pointed to a shorter work week, more leisure time and industries developing around increased leisure time coupled with the income to enjoy it. We have nothing like that in place or even in mind. Instead those desperate for any kind of job are to work longer hours for less pay and be appreciative for their opportunity.

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We have nothing like that in place or even in mind. Instead those desperate for any kind of job are to work longer hours for less pay and be appreciative for their opportunity.

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The bitter truth is that the employment prospects for a recent college grad are far more grim, especially full-time employment in their field of study.

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All of the sci-fi stories pointed to a shorter work week, more leisure time and industries developing around increased leisure time coupled with the income to enjoy it.

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Global demographics instruct that manufacturing job growth in nations with emerging economies will continue to outpace manufacturing job growth in America.