Part 1 - The Economic Growth & Prosperity The American Middle Class Has Been Cheated Out Of

"I strongly oppose eliminating the pay raise for civilian federal employees & will work with my colleagues to have the pay raise included (in spending bills).  Our public servants have been getting shortchanged for years." – Congresswoman Barbara Comstock (R-VA) who is in a tight reelection campaign in the northern Virginia suburbs right outside of Washington, D.C.

 

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The above graphic shows that federal government civilian workers continue to do just fine, as they have for decades, compared to private sector workers – so Congresswoman Comstock doesn't have to worry about their compensation.  Average total compensation (i.e., wages & benefits) for a full-time year-round civilian with a high school or less education working for the federal government clocked in @ over $100,000 per year.  The above graphic shows that it is not until the professional degree/doctorate level that the private sector total compensation exceeds federal government civilians' total compensation.

 

The Bureau Of Economic Analysis (BEA) reported that in 2016 federal government civilian workers had an average annual wage of $88,809 - about 50% more than the $59,458 annual average wage that private sector workers earned in 2016.  See graphic below that shows the wage growth & widening wage gap since 2000 – excludes the U.S. Postal Service.

 

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According to BEA data, in 2016, the average annual total compensation for federal government civilian workers was $127,259 - 80% more than the $70,764 annual total compensation for private sector workers.  See graphic below.

 

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Long time readers of RTE will remember the following graphic that I presented in previous posts over the years.  The compensation gap has been somewhat reduced for the private sector versus federal government civilian workers as indicated above.  The compensation gap for the almost 20 million state & local government workers has been reduced also – it was 42% on average in 2016 substantially lower than the 76% shown on the graphic below.

 

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The above described compensation gap is rooted in the fact that federal government workers are a powerful special-interest group with effective lobbyists.  Federal government unions actively oppose legislators who support restraining worker pay – just ask Congresswoman Comstock (see quote above) as she campaigns for reelection in her northern Virginia district that has a large number of federal government civilian workers. 

 

See graphic below that shows the growth of the membership in public employee unions from less than 20% of the total in 1973 to the majority in 2009.  As recently as the 1950s there were no unions for government workers.  In 1962 JFK signed executive order 10,988 which allowed unionization of the federal workforce – this also was the genesis of the unionized public work force in many states & cities.  This led to the large membership growth of public employees unions such as The American Federation of State, County, & Municipal Employees (AFSCME), the Service Employees International Union (SEIU), & the National Education Association (NEA).

 

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We don't have to think long or hard to see the problem the 114 million private sector workers, who pay the salaries & benefits of the the 22 million federal, state, & local government employees, are having with the above described compensation gap. 

 

Private sector workers can work decades longer @ lower wages than many public sector employees.  It is common for private sector workers to still be working in their 60s, 70s, & 80s & paying taxes that support inflation adjusted pensions plus lifetime free healthcare benefits of much younger public sector employees who retired in their early 50s.  It is only human nature for this development of events to cause resentment of people's fellow neighbors – unless they do an honest evaluation of their own culpability or ask themselves why they didn't join a public sector employer if they thought this seeming gold mine employment could continue for a lifetime of work.

 

But of course there are problems because the consistent creation of the richness of wealth under a growing dominant public sector regime cannot be maintained as the graphic below shows.

 

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The above graphic shows that from 2001 to 2016 employer's contributions to state & local pensions increased four fold while for the same period the funding ratio dropped from fully funded to below three quarters funded meaning that accrued liabilities increased faster than the growth of the economies in many states including NJ, IL, CT, NH, & KY.  These states, & many others, would have to raise billions of dollars more, mostly through taxing the private sector – either individuals or corporations, to even have a chance to adequately fund the promised pension benefits.

 

Robert J. Sartorius ASA, MAAA, FCA, provides the latest egregious example of private sector taxpayer abuse by local government when he writes in the WSJ "nowhere in the free marketplace can such guarantees be made" referring to the matching of the assumed funding rate of pensions by taxpayers if the actual rate earned on employee contributions is below the rate set by New York City in their pension funding calculations.  That is, if the current assumed 7% investment funding rate of return is not met on employee contributions taxpayers make up the difference.  This NYC taxpayer liability is an example of the creative exploitation politicians can foist on the private sector.

 

This concludes Part 1 of this post.  See Part 2 for the conclusion.