Figures released today by the Bureau of Labor Statistics provide less encouragement than today’s GDP report. Total compensation increased by only 1.5 percent in 2009 (without adjusting for inflation) – the lowest increase on record. If a turnaround has begun, workers are not feeling it in their wallets.
However, this pain has not been distributed equally throughout the economy. In the private sector, total compensation grew just 1.2 percent in 2009. On the other hand the compensation paid to state and local government employees grew 2.4 percent. The average government employee got twice the raise that private sector workers did.
Why did government workers get higher raises? In the private sector workers compete to produce goods and services that others value. In a recession, production falls and employers have less money to pay raises with. On the other hand, taxes fund government paychecks. Government employees can continue getting raises no matter the health of the overall economy, so long as taxes keep coming in.
This fact has turned the labor movement into determined tax hikers. Union membership has grown in the government even as it has fallen in the private sector. Three times as many union members now work for the Post Office as in the Auto Industry. In 2009 the numbers crossed: a majority of union members now work for the government. Higher pay for government employees can only come through higher taxes on private sector workers.
Unions almost never go on strike anymore. Instead, they fight to get more for their members by lobbying for tax increases. Unions spent tens of millions of dollars last year campaigning for higher taxes across the country: Illinois. California. Minnesota. Washington State. Arizona. In many cases they have succeeded.
The latest example comes from Oregon, where public sector unions outspent businesses 3 to 2 to pass two ballot initiatives raising taxes by $700 million. The unions wanted higher taxes to prevent spending cuts. Had the taxes increases failed government employees in Oregon would have faced cost cutting measures such contributing toward the cost of their health benefits – something they currently do not do.
Government employees have done well in this recession. Few government jobs have disappeared – unlike in the private sector – and their pay rose at twice the rate of their private sector counterparts. No wonder that government employees are almost three times as likely as private sector workers to believe that the economy is in “good or excellent” shape. The question for policy makers is why should private sector workers have to pay for this?
In a preview of the State of the Union address, President Obama has recommended a plan to help students pay off their debt – with taxpayer dollars, of course.
As Politico reports:
The Obama-Biden Administration will make student loans more affordable by limiting a borrower’s payments to 10 percent of his or her income above a basic living allowance. It will also keep the total cost of loan repayment manageable by forgiving all remaining debt after 10 years of payments for those in public service work and 20 years for all others. The monthly payment for a single borrower earning $30,000 who owes $20,000 in loans would be $115 a month, compared with $228 a month under the standard 10-year repayment plan.
Got that? College graduates saddled with student loan debt who decide to go into “public service work” will have their debt forgiven after 10 years. And if they do anything else, like join the private sector, their debt will be forgiven in 20 years.
At this point, it’s not entirely clear what type of “public service work” would qualify an individual for this deal. But as it stands, the public sector is appealing enough to college graduates. According to USA Today, the number of government employees taking in six-figure salaries has exploded, and the growth of these big-shot salaries has pushed the average federal worker’s pay to $71,206, compared with $40,331 in the private sector.
If implemented, such a plan could very well have some influence on the career paths of young college graduates. And it might have an impact on the rest of Americans. Since the government doesn’t have a vault of money set aside for this sort of plan, taxpayers will foot the bill. Taxpaying hairdressers, plumbers and machinists who chose not to attend college would be forced to pay off the debts of college graduates (at an even higher level if they decide to join the public sector).
Francis Cianfrocco of the New Ledger adds:
Higher education is like healthcare in that payments to providers are already heavily subsidized by government. Also like healthcare, the cost of education is rising every year far more quickly than the general inflation rate…colleges and universities are also like hospitals and medical practices in another sense: with no built-in incentives to cut costs, they don’t cut costs.
Therefore, as college costs continue to rise, future students may be forced to take out larger loans to pay for the increasingly expensive college bill. That means more college debt would be thrust onto the backs of taxpayers. This is a program that would almost certainly grow over time, considering the existing structure of American higher education.
The President should remain committed to helping American college graduates, but he should do that by helping foster job opportunities, as well as by demanding greater efficiency from universities that take federal funds. More job opportunities for college graduates will be created if the government loosens regulations and cuts tax rates for small businesses and entrepreneurs. The private sector remains the dynamic sector of our economy, and the President would do well to remember that when trying to help our college graduates.