Tuesday, October 29, 2013

How to handle federal pay during a shutdown

Federal employees are receiving full pay for the shutdown, even if they did not work during that period. As I wrote on The Corner yesterday, Congress is not being a good steward of the public purse with this decision:
Much ink was spilled earlier this month about the plight of federal workers who were furloughed due to the budget impasse. One federal employee union even bafflingly likened its members to “indentured servants.” But now, quietly, federal workers are receiving full pay for the shutdown period, whether they worked or not. In fact, some furloughed employees will receive special overtime and holiday premiums on top of their regular paychecks, just as long as they were scheduled to work overtime or on Columbus Day.
If compensation for federal employees were barely adequate as it is, adding unpaid leave might create a significant recruit-and-retain problem for the government. However, as noted in a previous post, the average federal employee receives a considerably better compensation package than similarly-skilled private-sector workers.

Of course, unpaid leave can be disruptive for people, especially those who are living paycheck-to-paycheck. But rather than turning the unpaid leave into paid vacation, Congress should have required federal agencies to expand overtime opportunities or reduce future vacation to let employees work for the lost income. A firm "work-for-pay" mindset would have better served taxpayers.

Sunday, October 20, 2013

Surveying the literature on federal pay

Andrew Biggs and I have studied federal versus private-sector compensation in depth over the past few years. We've written everything from short op-eds to long quantitative reports on the subject. But perhaps our single best distillation of all the technical issues was a 2,500-word essay in The Weekly Standard. Here's a passage from the introduction:
Unfortunately, the debate over federal pay has been fraught with extreme claims. Some politicians have accused federal workers of making double what they deserve, while government unions maintain they are underpaid by around 25 percent. The rhetorical back and forth has largely hidden a substantial academic literature, dating back to the 1970s, that compares the pay of federal and private workers. Economists have addressed the issue with a variety of techniques and from a number of different angles.
We go on to discuss the human capital model, fixed effects analysis with "job switchers," quit rates, application rates, queue models, and the relationship between public-sector compensation and overall budgetary health. We conclude by noting that federal pay is a complicated problem with only imperfect solutions:
Fundamental reform of federal compensation—not merely temporary pay freezes or furloughs—could offer significant benefits to taxpayers. At the same time, we must acknowledge that there is no perfect solution. No amount of “good government” reforms can ensure that federal workers are paid exactly the same way as their private sector counterparts, because the federal government can never be subject to market forces the way the private sector is. 
It's a rigorous but accessible piece that can be read here.

Wednesday, October 16, 2013

The misuse of academic tests

I recently wrote two pieces for National Review on the use of academic tests to promote "educational romanticism"--the belief that all students have the same ability. First, we have the annual alarm raised by the College Board regarding SAT scores: 
It's time again for the yearly ritual: The College Board releases data on recent SAT scores, which show some large percentage of American students are not "college ready." The alarm is sounded. Much hand-wringing follows. Wash, rinse, repeat.
Absent from the College Board's press release (and almost all subsequent media coverage) is a discussion of what percentage of students should be college-ready. Here's a better way to think about the performance of our schools:
Rather than gnashing teeth about college readiness each year, a more productive activity would be to analyze the degree to which our school system is tailoring instruction to individual student needs. For example, is vocational training available to kids who want it? Are two-year technical degrees advertised properly? Are gifted students challenged enough? These are much more important topics than tabulating what percentage of students pass an arbitrary test-score threshold.
Part of the movement to equalize outcomes is "open access" for advanced placement (AP) courses. Rather than invite the most capable students to enroll, some schools are subjecting oversubscribed AP courses to a random lottery, thereby excluding some of the best students. This is simply a bad policy, one that hurts kids at both ends of the ability distribution.

Let me state for the record that I like tests. I like that the SAT can sometimes reveal people's academic talent even when their grades are poor. I like that AP tests challenge high-achieving students with college-level material. Even the dreaded "teaching to the test" phenomenon can help focus a class on learning essential material. And the results of student tests, when properly incorporated into value-added models, can be useful in evaluating teacher performance. But:
It’s ironic how tests have been re-purposed in the service of egalitarianism. The SAT is normally used by selective colleges to help differentiate applicants, but now the College Board uses it to push a college-for-all ideology. AP courses were intended to give an extra challenge to the most capable students, but now the same courses are seen as tools for closing the achievement gap. Welcome to the strange world of American education policy.
Read my piece on the SAT here, and then the follow-up on AP tests here.

Thursday, October 10, 2013

Another broken-window fallacy applied to retirement benefits

In a disturbing trend, a number of organizations supporting increased retirement benefits have claimed that the benefits themselves are major boosts to the economy. Using a "money multiplier," they claim that each dollar in pension or Social Security benefits ripples through the economy and becomes two dollars--or even three or four dollars, depending on the study.
Billy Joel just contributed to the economy.

This is nothing more than the old broken-window fallacy in economics. These types of studies tout the economic activity we can see (the pension payment or broken window repair), but ignore the activity that we cannot see (how the money would have been spent if there were no pension payment or broken window).

Over at the Corner today, I wrote about the most recent broken-window study, courtesy of the AARP:
For whatever reason, organizations supporting higher levels of retirement benefits are attracted to broken-window fallacies. The latest example is a study from AARP, titled “Social Security’s Impact on the National Economy.” It tells a classic broken-window tale, in which retirees spend their Social Security checks on goods and services, then the providers of those goods and services take the money and make additional purchases, etc. The report tells us that “every dollar of Social Security benefits generates about $2 of economic output.”
Who knew that the U.S. could double its wealth by writing checks to seniors? How convenient for AARP. The trouble, obviously, is that the analysis leaves out all the economic activity that would have been generated by workers if they could have kept the taxes they paid toward Social Security.
Read the whole thing here.