Government Employee Compensation

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A debate over how compensation for government employees compares to the private sector with Nick Dranias of the Goldwater Institute and ASU political science professor Dave Wells.

Ted Simons: Good evening and welcome Arizona Horizon. I'm Ted Simons. A tuition freeze for in-state undergraduates at ASU. The board of regents approved the freeze today. It's the first tuition freeze at ASU in 20-years. There will be a 3% increase, though, for graduate and out-of-state students. The board of regents did not hike tuition at the University of Arizona, but a rebate expires next year, which effectively increases tuition at the U. of A. by 8%. Incoming freshmen at Northern Arizona University will see a 9% tuition hike. An independent attorney has been hired to help consult Pinal County Sheriff Paul Babeu, who's facing three separate investigations. Pinal County Attorney James Walsh and Babeu came to an agreement to hire the attorney so that Walsh's office can avoid any appearances of a conflict of interest. The attorney will be paid out of the sheriff's budget. A new report says that Arizona government workers are paid 6% below workers in the private sector. The Grand Canyon Institute released the report as the legislature continues to consider bills that would make it easier to fire government workers. The Goldwater Institute supports those bills and claims that government employees are paid half a billion dollars above market rates. Here to discuss the issue of government worker pay is Arizona State University Political Science Professor Dave Wells. He represents the Grand Canyon Institute. Also here is Nick Dranias of the Goldwater Institute. Good to have you both here. Thanks for joining us. Let's start with the idea that public worker compensation is a real problem in Arizona. Valid?

Dave Wells: No it's not valid. What we took as an example of 10,000 workers, Arizona workers, and when we estimate how much they're paid, we find that private-sector workers are paid 6% above public-sector workers and that's adjusting for the total compensation that they get, including retirement benefits as well as their hours' worked. So we felt this was a much stronger estimate than what the Goldwater had done.

Ted Simons: You found that 44% higher? Talk to us about what the bureau of labor statistics found from those numbers.

Nick Dranias: First thing. I think it was Mark Twain that said there's lies, damn lies, and then there's statistics. The problem with the Grand Canyon Institute's estimates is that they relied on the methodology of an author named Keith whose methodology was already called out by the bureau of labor statistics. His model omits paid leave and that skews the estimate in favor of finding what they found, after all. And this is a problem with statistical models as demonstrated by Keith's methodology. You can keep adding what they call controls until you get the result you want and it's exactly what Keith did. He did in two other ways, as well. We also assumed that every higher degree is worth as much in the job market. An education degree and an engineering degree should be treated same way as a control. That's absurd. He assumed the larger a governmental organization is, the more valuable the worker is which explains supposedly why they get more benefits. Another absurd assumption. When you take a statistical model and you build into it one absurd assumption after another until you get the result that you want, that's not a reliable model.

Dave Wells: It's funny to have the Goldstone Institute say something's absurd. As an apples to apples comparison, you want somebody with the same level of education. If you're looking at a white male who has a certain level of experience and education, you want to compare them in the public and private sector the same. When the Goldstone Institute did their model, they don't do anything like that. 98% of the data in the Goldwater model comes from outside Arizona. They're using U.S.-wide aggregate numbers, they combined part-time and full-time workers. We limit ourselves to full-time workers and we're controlling for all these different variables so that the only difference is if they're in the private or public sector and it's a far more accurate way to do it than what the Goldwater Institute did.

Nick Dranias: First of all, they don't even address what our model is. We're two ships passing in the night. We have actually made the case that what drives government compensation is collective bargaining laws to a very substantial extent. We didn't set out to determine what the difference really was between private sector employment and government sector employment. Instead, we relied on academic journals that have already established that and the bureau of labor statistics' own figures. They have said that an hourly basis, government workers in state and local government make 44% more than the average private-sector numbers. That's not our numbers, that's the government's numbers.

Dave Wells: Those are numbers for the whole United States and that's the problem. They continue to use the entire United States. When you look at just Arizona, one of the comparisons, if you were to compare public to private, one of the things you want to control for is difference in education. 43% of the workers in the public sector in Arizona have at least a college degree. Only 27% do in the private sector. And Goldwater doesn't make that correction. And with high school degrees, 12% have less than that in the private sector only 4% in the public sector. When you make those adjustments in Arizona, not only what's most ironic of all is despite the educational differences, public sector workers, their compensation is actually 2% less than the private sector workers.

Nick Dranias: Ok there's two problems. Number one, all the adjustment that the Grand Canyon Institute has made are subjective, completely seat of the pants, cook your way to the results you want type adjustments. For example, as I said from the beginning, they didn't include paid leave among their measures of compensation. And this is already being criticized by the bureau of labor statistics economists in a published academic journal. There is no good localized model out there because of the subjective judgment calls that have to be made up saying this occupation is the same as that occupation. A better model takes an objective measure, which just happens to be the statewide numbers.

Ted Simons: I guess some would argue that point, but my question to both of you is how do you compare a teacher, which is a public worker, to a private school teacher? How do you make that -- a cop and a firefighter. What kind of comparisons can be made to the private market?

Nick Dranias: I don't believe that a legitimate model has yet been created that compares things at that sort of grassroots level. All job markets are interrelated at the biggest and most aggregate level. They're competing for the same pool of potential applicants. They're driven by the same supply and demand, which is why we believe that aggregate numbers at the state wide and national level are a better thing to do than to try to concoct a model that doesn't take into things and makes subjective judgment calls like the Grand Canyon Institute.

Ave Wells: They're not subjective. It's called human capital theory, and education and experience are the primary drivers of people's earnings. It's left out of the Goldstone Institute model and you always want to use individual workers and Arizona workers. And Goldwater Institute did not do any of those things. The Grand Canyon Institute did the best model estimate to come up with their things and we find that when we control for things like hourly compensation, we're including all the compensation, the issue about not including paid leave is a question about the -- when you ask workers about their wage and salaries, what they include in that. And Professor Keith who I worked with finds that when workers report those things, they're thinking about things they get paid for as part of their wages and salaries. It's not double counting it. It's not the criticism that Nick is alleging.

Ted Simons: It would seem like you would include paid leave as a benefit. You're saying that's a double account?

Dave Wells: In some areas. We do include -- we talk about entirely about non-wage benefits, including all the stuff about pensions and so forth and we do a very careful analysis to look at all those aspects of that aspect of compensation to try to get at the total compensation piece because public sector workers do get a larger amount of non-wage benefits in their total compensation.

Nick Dranias: Let's be clear about what the Grand Canyon Institute really did. They shopped out their report to a guy who the bureau of labor statistics has called out in a published academic journal as quote not including paid leave in compensation before calculating his markups. So the bottom line here is we didn't create any numbers. We relied on the bureau of labor statistics' own numbers, we applied those numbers established by the government as a basis for determining what is driving government compensation. We found that collective bargaining laws are a substantial driving force to the tune of $550 million a year in Arizona. Nothing in their report in any way even addresses that finding.

Dave Wells: First of all, you did use the bureau of labor statistics numbers, you used numbers from the national -- gdp numbers. That's why you can't break them down to individual workers. You used the wrong numbers to start with. We looked at some of the issues as related to unions. Arizona's a weakly organized union state. It's a right to work state. There's no mandatory bargaining here. Workers are not required to join a union and when we looked at the economic reports by the Princeton University that they had cited, when you categorize it by states, there's a union premium but it's much lower in states where there's weaker union rights. And we found the premiums between 0% and 7%.

Nick Dranias: So much of what is just said is false that it's laughable. Arizona does have collective bargaining laws. They're mandatory. They exist at the local level. It's a major myth that we've been working hard to dismantle. The reality is that Arizona has collective bargaining.

Ted Simons: Are you saying Arizona is a strong union state?

Nick Dranias: It is not a strong union state but it does have collective bargaining laws for the government sector and they give leverage to government employees to extract $550 million a year from the taxpayer that they would not otherwise be able to extract based on pure market forces. Nothing in their report even addresses that argument. They are instead challenging our reliance on bureau of labor statistics numbers that are government vetted with the numbers of a paid consultant whose methodology has already been exploded for not counting paid leave.

Ted Simons: It sounds like you're also being criticized for not focusing on Arizona as opposed to using a national model.

Nick Dranias: It would make sense to focus on Arizona if there was a good methodology, better methodology than when we used. For our purposes, the best methodology is to look at overall compensation in the state because that is an objective measure. If you try to control for all these mysterious factors that their paid consultant controlled for, that is pure subjective judgement.

Ted Simons: You've got 30 seconds.

Dave Wells: I'm amazed what he's pulled out from two sentences in that 30-page report. There's a dispute about those things. I would say the bottom line is you want to use Arizona workers and you want to use -- we used the cps numbers that come out every March, they have very few.

Ted Simons: We have to stop it right there. Good discussion. Good to have you both there. Thanks for joining us. We appreciate it.

Nick Dranias:Goldwater Institute; Dave Wells:ASU political science professor;

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