Public-Private Compensation Gaps Still With Us

The public sector's misconception of reality

For many years the Mackinac Center has pointed out that on balance government employees do better financially than those who pay their bills.

This was driven home for me recently by new statistics reported by the Wall Street Journal. The gist was characterized by one snarky newsletter title, "Sorry About the Recession, America, But Don't Worry About Washington."

Specifically, average median household income in the nation's capital city rose 23.3 percent between 2000 and 2012, while the typical household in the rest of the country experienced a mere 6.6 percent rise. This is a wide gap, but not surprising given the way political and economic power is becoming increasingly centralized in Washington.

Is there a similar pattern unfolding in Michigan's relationship with its capital city? From 2000 through 2012, in Ingham County — home to the state capitol and many government employees — median household income grew 28 percent faster than the state as a whole, according to U.S. Census data (6.3 percent versus 4.9 percent).

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None of this is news. In 2007 I authored, "What Price Government," which used broad statistics and anecdotal evidence to show that state employees do better economically than those in the private sector.

In his 1996 study, "Capital Crimes: Political Centers as Parasite Economies," Richard Vedder explores hypotheses that people who work in the "parasite economy" — politicians, civil servants, lawyers and lobbyists — successfully work to advance their own interests at the expense of everyone else.

The term, "parasite economy," was coined by writer Jonathan Rauch. I've cited him before in reference to one component of this state's "parasite economy," the Michigan Economic Development Corp. (see: "Milking the Cow of State Development Departments").

In both Michigan and the nation as a whole, citizens are paying a premium to keep government employees living in the style to which they have become accustomed and giving them ever more areas of life into which to intrude. Yet there is little or no evidence that all these "investments" have made life much better — just the opposite, if anything.

It's not just public sector payroll that's expanding in our capital cities, either. The vast expansion of government in the past decade — including the creation of a "deep state" in "homeland security," financial regulation and social welfare realms (the NSA, Dodd-Frank and Obamacare, among many others) — has greatly increased the potential rewards for favor — or protection-seeking special interests to hire lobbyists and other sorts of influence peddlers.

Perhaps we should try a fresh new approach instead: Fewer government employees, with less to do, and more balanced compensation for the ones who remain.