By James Kwak
David Brooks may be a wonderful person, but I don’t like his columns (and I didn’t like Bobos in Paradise, either). It’s hard to put my finger on why, but he helped me out with yesterday’s column. For one thing, he has this annoying habit of trying to claim the reasonable center, often by making false equivalences between the two things he is trying to sound more reasonable than. So, for example:
“No place is hotter than Wisconsin. The leaders there have done everything possible to maximize conflict. Gov. Scott Walker, a Republican, demanded cuts only from people in the other party. The public sector unions and their allies immediately flew into a rage, comparing Walker to Hitler, Mussolini and Mubarak.”
Comparing the other side to Hitler is bad.* Pushing for legislation that hurts the other side is something else. In the abstract, that legislation may be justified; Walker did just win an election, after all. But it’s a completely different category from making stupid signs to hold at rallies, and it’s a classic David Brooks false equivalence.
But that’s just a minor peeve. It’s when Brooks adopts his pseudo-reasoned “everybody knows” tone that I get really mad.
“Everybody now seems to agree that Governor Walker was right to ask state workers to pay more for their benefits. Even if he gets everything he asks for, Wisconsin state workers would still be contributing less to their benefits than the average state worker nationwide and would be contributing far, far less than private sector workers.”
Brooks is trying to make you believe that “everyone agrees” that state workers should pay more because they don’t contribute enough toward their benefits. This is an important predicate if you want to make the case for slashing public sector benefits. But first of all, by “everyone,” Brooks seems to mean “whoever writes talking points for Paul Ryan,” who said, “State workers who have extremely generous benefits packages, [Walker’s] asking that they contribute 12 percent to their health care packages. It’s not a lot, it’s about half of what private-sector employees pay, and he’s getting riots.”
More importantly, though, I have no idea what Brooks’s (or Ryan’s) claim — that public sector workers pay less for their benefits than private sector workers — could even mean.
How much do you “contribute” to your benefits? Let’s say you work in the public sector and have a $60,000 base salary. You also have a health care plan that is worth $12,000, of which you contribute $3,000, so you end up with a post-benefit salary of $57,000 and a health care plan worth $12,000 for a total value of $69,000. Compare that to your sister in the private sector who has an $80,000 base salary but has to pay half the cost of her equivalent health plan. So she has a post-benefit salary of $74,000 plus a $12,000 health care plan for a total value of $86,000. You “contribute less to your benefits,” but your sister is much better off.
The idea that you can compare the amount that people contribute toward their benefits is based on the assumption that first everyone in the world bargains for salary and then everyone in the world bargains separately for benefits. That’s nonsense. Insofar as there is any bargaining, there’s only one bargaining phase, in which you bargain for both and all you care about is the total value. The amount you nominally “contribute” to your benefits is meaningless, because you also pay for benefits by accepting a lower salary. A lot of the pain over restructuring retirement benefits for unionized manufacturing workers was because their unions had specifically negotiated for those benefits instead of wage increases decades before — and management went along because it wanted to push those costs far into the future.**
So the only meaningful thing to look at when comparing public and private sector workers is total compensation. By educational level, this is what that comparison looks like:
The chart is from Menzie Chinn, based on data from a briefing paper by Jeffrey Keefe.*** At every level except “less than high school,” private sector workers make more than public sector workers. Furthermore, if you control for full-time status, education, years of economic experience, gender, race, citizenship, and organizational size, it turns out that public sector workers make about 5 percent less per hour than private sector workers.
Now, they may be getting something in exchange for taking less money: more job security, less stress, whatever. So I’m not claiming here that they are underpaid. I’m just saying that claims based on the amount that people “contribute” toward their benefits are meaningless. I’m not surprised that politicians like Paul Ryan make those claims. I’m not particularly surprised that David Brooks repeats them, either. I just wish he would stop.
Update: I agree that trying to measure whether public sector workers are overpaid or underpaid is difficult. You can always say that Keefe should have added more controls and would have gotten a different result. But the main nonsense I wanted to focus on is this idea that your nominal contribution to your benefits is a meaningful number at all.
* “‘Scott Walker’ Hitler” returns 400,000 results; “‘Barack Obama’ Hitler” returns 20.3 million results.
** This was before ERISA, which introduced more stringent rules for funding pension plans.
*** In case you’re wondering how public sector workers in aggregate can make more than private sector workers, even though private sector workers make more in every educational category except “less than high school,” it’s because public sector workers in aggregate are more educated than private sector workers.