This Sacramento Bee story pointing out that local governments in its region spent more propping up failing public employee pension plans than it would cost to build the Kings a new arena is interesting because it points to a part of the pension debacle that never gets enough attention. A central argument against public spending on sports facilities is that they’re simply not necessities and that they amount to giveaways to the politically connected. The exact same thing is true of ludicrously generous pensions. With the possible exception of police, they’re just not necessary to attract and retain public employees.
Remember, the theory used to justify defined-benefit pensions for public employees in the mid-20th century was that they were necessary because public employee pay was so low. That’s no longer true. They exist as a function of political power.
Now the new trope used to justify lavish pensions is that without them there would be a massive exodus of talented government workers. This brings me to one of my favorite moments of recent years in California academia: the retromingent way the UC Berkeley labor “think tank” embarrassed itself back in 2009 with a report warning of the huge downside of furloughing state workers a day or two a month:
[Because of furloughs] employers are most likely to lose highly productive workers that have greater opportunities for outside advancement and find it more difficult to attract such workers in the future.
What were the footnoted sources for this claim?
4 Yellen, Janet L. (1984, May). Efficiency wage models of unemployment. The American Economic Review, 74, (2), 200-205.
5 Campbell, Carl M, III & Kamlani, Kunal S. (1997, August). The reasons for wage rigidity: Evidence from a survey of firms. The Quarterly Journal of Economics, 112, (3), 759-89.
The first is a broad, long-term study of the entire U.S. economy that is focused on the private sector, not government. See for yourself.
The second deals entirely with the private sector. See for yourself.
As I wrote back in 2009, why does this matter?
Because if you know even a tiny bit about labor economics, you understand there is an enormous difference between the public and private sectors. The UC Berkeley study posits that the dynamic that exists in the private sector exists in state goverment — that there is active market demand for state employees that means furloughs would result in an exodus of the talented.
Bunk. The public sector’s turnover is minuscule.
Here’s what the ultimate labor think tank — one that doesn’t reach conclusions before it starts — reports with the latest jobs data, from January: Monthly job turnover in the private sector is far higher than it is in the state government sector.
That’s from the U.S. Labor Department’s Bureau of Labor Statistics. Remember, this tiny turnover is occurring even as public employees face what has been depicted as the roughest stretch they’ve ever faced.
Plainly, the argument that there is heavy market demand for state employees is wrong. Obviously, the UC Berkeley “study” is actually a pronouncement from an interest group, not an academic work.
The media have finally woken up to the pension crisis. The focus is usually on the huge cost. But there’s not nearly enough focus paid to the fact that the basic rationales for lavish pensions — they’re necessary because of low pay and to prevent brain drains — are both crocks.