Friday, January 15, 2016

Public-sector compensation and compulsory union dues

Earlier this week I wrote a blog post for NR on the correlation between compulsory union dues and excessive pay in the public sector. The centerpiece of the post was a chart showing the compensation premium in each state. Unfortunately, the editors removed some of the state labels in order to squeeze the chart on to the blog. Below I've reposted the entire piece, with the full version of the chart available by clicking on it.
Public Employees May Soon Be Less Overpaid

As James Sherk, Mark Pulliam, and others have already noted here, the Supreme Court appears poised to strike down all compulsory union dues for government workers. I have no legal analysis of my own to offer, but as a policy matter it is important to point out the correlation between compulsory dues and the degree to which public employees are “overpaid.”

A couple of years ago, Andrew Biggs and I compared state workers’ total compensation – meaning wages plus benefits – with the compensation of similarly-skilled private workers. We found that most states pay their workers a premium over private-sector levels. The chart below orders the states from the largest premiums to the smallest. Union dues are compulsory for public workers in the states colored blue, while dues are not compulsory in the states colored red. (Categorizing each state by its treatment of public union dues can be tricky, but the website appears to have done the most thorough job.)

Click for a readable version.
Compulsory dues are clearly associated with larger premiums for public employment. State workers in compulsory states are paid 17.0 percent more on average than comparable private workers, while state workers in non-compulsory states are paid just 5.6 percent more. And note that Michigan and Wisconsin only recently switched to voluntary dues, so most of the impact has yet to be felt in two of the higher-paying voluntary states.
The usual caveat about correlation and causation applies, but the data are consistent with the view that union strength really does matter. When dues are compulsory, unions have more money to lobby public officials for generous pay packages. If the Supreme Court limits union funding to voluntary donations, public-employee compensation will probably still be excessive, but less so. It’s a start!

Saturday, January 9, 2016

Revisiting the Mariel boatlift

Last week I wrote a piece for Real Clear Policy detailing the new debate over the Mariel boatlift. From the intro:
Does immigration lower the wages of native workers? There is perhaps no event more often cited on this question than the "Mariel boatlift." After Fidel Castro announced in 1980 that anyone wishing to leave Cuba could do so via the port of Mariel, 125,000 Cuban immigrants came to Miami between April and September of that year. The sudden influx of workers generated an intriguing test of how immigration affects wages in one city.
Update: The Center for Immigration Studies has published an expanded version of my piece as a backgrounder.

I then appeared on Breitbart Radio ostensibly to talk about the article, but not surprisingly we talked more generally about immigration policy. (The boatlift is a dry topic, no pun intended.) Listen to the interview below, or visit the original Breitbart page here.

Sunday, January 3, 2016

Here is public pension fallacy #10

I spent a large part of my early career working on the public pension issue, especially as it relates to public-sector compensation. During that time, I encountered a number of fallacious talking points -- some transparently false, others having a surface plausibility -- which pension advocates frequently deploy.

Not actually where pension funds come from.
A few years ago I put together a paper that lists and responds to each of the fallacies. It's had some staying power. Even after my Heritage Foundation exit and subsequent inability to promote my pension work, the paper gets passed around and cited fairly often. It even appeared on the list of the top ten most-read Heritage papers for much of 2015. Here are the nine fallacies:
Fallacy 1: The average public pension payment reflects the generosity of the plan’s benefits.

Fallacy 2: The cost of a public pension plan is equal to whatever the government contributes to the pension fund each year.

Fallacy 3: Public pension plans can “assume away” risk because governments are long-lived.

Fallacy 4: Advocates of risk-adjusted discounting are merely a niche group of contrarian economists.

Fallacy 5: Critics of public pension accounting assumptions are projecting low rates of return.

Fallacy 6: The investment returns earned by a pension fund pay for most pension benefits, so taxpayers are actually charged very little.

Fallacy 7: Public pensions are not overly generous because they are simply deferred compensation.

Fallacy 8: Generous pensions are necessary because some government employees do not participate in Social Security.

Fallacy 9: Closing a public pension carries major transition costs.
Click the link above to read concise responses to each of these fallacies.

For reasons that were never clear to me, a tenth fallacy included in my manuscript did not survive the publication process. So here is the original text of what I'll now call public pension fallacy #10:
Fallacy 10: Pension payments serve as a tremendous economic stimulus.

The National Institute on Retirement Security (NIRS), a public pension advocacy group, publishes studies that purport to show the stimulus effects of pension benefits. Its latest report states that $2.37 in economic activity is generated for every dollar distributed via pension checks. The NIRS report has spawned numerous state- and local-based stimulus studies that make similar claims.

But all of these claims are empty of any policy relevance. The stimulus effects are based on the uncontroversial notion that economic activity (such as paying pension benefits) begets further economic activity. The fallacy is in ignoring what economic activity would be generated by taxpayer money if it were not diverted to pensions in the first place. As the NIRS study acknowledges, the stimulus effects it cites are the gross economic impacts of pension benefits, not taking into account the de-stimulative effects of moving employee and taxpayer money out of the economy and into the pension plans. 

If public pensions did not exist, the money otherwise used to fund them might be spent in ways that are at least as stimulative as NIRS claims pensions to be. For that reason, the stimulus studies published by NIRS tell us nothing about whether pensions are good economic policy.
For an expanded discussion, see my piece with Andrew Biggs, "Public Pension Stimulus Nonsense."

Despite regular debunkings, NIRS has continued to issue an annual report dedicated to the stimulus fallacy. Each new report uses the same methodology, with no acknowledgement of the criticism the previous one invariably gets. It's not so much research as it is propaganda.