Tuesday, January 31, 2012

Fair Pay for Federal Employees?

I won't argue that less-educated federal workers receive better wages and benefits than their private-sector counterparts. The non-particsn CBO's recent report is accurate and well-considered--it doesn't address pay differences among state and local public employees.

Source: Congressional Budget Office

My question is: is that a bad thing? At the low-end of the wage scale, these higher salaries and benefits create just the kind of middle-class security that most Americans aspire to. It’s also worth noting that minorities represent 33.8% of the federal workforce, about 4% more than the nation’s as a whole.

There are certainly cases of wage and benefit negotiations gone absurd, in which workers extract unreasonable pension commitments or counterproductive job protections. Still, perhaps the worse outcome, is the retreat from principles of employment and retirement stability for entry-level workers (who lack golden parachutes) across much of the private sector.

One reason for the gap, explains the CBO, is that public employees receive defined-benefit pensions rather than defined-contribution 401Ks. At their best, such pensions guarantee a decent quality of life in retirement with less vulnerability to market fluctuations and underfunding. At worst, governments agree to unreasonable commitments that later unwind in recriminations on all sides.

The crucial difference between defined-benefit and defined-contribution is that the former commits to provide funding equal to the need of those enrolled in the system; whereas, the latter commits an employer only to a certain level of funding regardless of eventual enrollee needs.

This report won’t end the debate over public sector salaries, and it may inspire questions over the efficacy of 401Ks and other private-sector compensation practices. It does shine some light on the issue of workers’ compensation that deserves attention as part of larger discussions of equal opportunity and a just society.

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