What Does It Mean To Have An Overpaid Public Sector?

In the wake of yet another study comparing private sector and public sector compensation, I continue to think the question of is a bit ill-posed. You need some kind of concept of an alternative. Carmelo Anthony is "overpaid" in the sense that other players making identical salaries are clearly superior, to wit LeBron James. But viewed in another light, James and Anthony are both underpaid relative to what they could command on an open market unconstrained by salary caps and the details of the collective bargaining agreement. Yet on the third hand, James at least has already shown some willingness to forego salary in pursuit of playing alongside Dwayne Wade and Chris Bosh. Or maybe he's just savvy about the tax implications of playing in Florida. Alternatively, there's a "just price" account by which star athletes are systematically overpaid since the work of a mere entertainer is often thought to lack social value.

What does this have to do with the public sector? Think about your community. Or, rather, I'll think about my community. It seems to me that if we cut MPDC officers' compensation by ten percent, that this would end up having a deleterious impact on the crime situation. So I don't think the cops are overpaid. By contrast, though I have absolutely no idea what the eight manicure licensing enforcement officers employed by the state of Kentucky are paid, I'm certain that it's too much. What bad consequences will flow from cutting their pay? Nothing. But the issue here isn't "overpaid" manicure inspectors, it's that Kentucky doesn't need to be employing these people at all.

At the federal level, it's now cliché to deplore talk of cutting spending by cutting "waste and abuse." The recent focus on public sector pay largely strikes me as a revival of the same trope. In either case the name of the game is to persuade people that lower taxes are compatible with an identical level of government services. We'll have all the same people do all the same stuff but just pay them less! I don't buy it. Of course if you cut teacher salaries across the board they don't just all quit and leave to be replaced by worse people. But what happens at the margin is that the best people leave, to be replaced by worse ones. There are (big) problems with teacher compensation schemes in the United States, but that doesn't solve any of them.