(Geoffrey Lawrence/NPRI) – It’s one of the most challenging questions facing labor economists today: At what level should most public employees be paid?
In public-sector employment, the typical price signals that help determine wage rates in competitive labor markets are absent. After all, most government agencies do not compete in an open labor market wherein they must also provide quality goods to discerning customers at competitive prices.
Instead, they operate legal territorial monopolies for the provision of certain services and can compel taxpayers to pay monopoly prices for those services — whether they want to or not. This means that, effectively, no consumer-imposed ceiling exists on the wages that can be offered to government workers.
The legal monopoly status of public-sector employers also means that, as a class, they need not bid against competitors to attract and retain highly productive workers. Because wages are not determined in a competitive market environment, they must be chosen arbitrarily.
In Nevada, wage rates for state workers are uniformly assigned by the state legislature. For local government workers, they are the result of political compromises — deals — between elected officials and public-employee unions.
Unions enjoy far more leverage in these negotiations than do the officeholders who’ve been elected to steward the people’s money. First, negotiations with public employee unions are conducted in secret and are exempted from the state’s Open Meetings Law — despite the fact that these negotiations involve the most significant expenditures of public funds.
Second, current law basically entitles union workers to receive every dollar a city or county has in its coffers, regardless of whether those salaries are justified by more fundamental labor market criteria. If union bosses believe a county or municipality can feasibly pay more than administrators have offered, they can submit a hearing to a politically selected arbitrator whose decision is binding.
Third, and most importantly, public employee unions — who are typically the largest campaign contributors in local government races and run effective get-out-the-vote operations — have the power to intimidate elected officials into acceding to their demands. Officials who dare take a hard line against union excesses are sure to face public pressure from unions who, as in North Las Vegas, run smear campaigns and/or fund political opponents.
Hence, public employee unions are able to determine who they negotiate with and what the terms will be and to force their will on the public — all while keeping taxpayers in the dark. This is how wages are determined in the non-market, or government-monopoly, sectors of the Nevada economy.
This process is fascinating to many labor economists who try to guess at what government-sector wages might be if they were determined by market forces and not contrived politically. The U.S. Department of Labor, for instance, tracks the differences in employee compensation for private-sector workers versus state and local government workers. Their analyses conclude that government workers enjoy, on average, incomes that are 44 percent higher than those of workers in private industry.
Indeed, official payroll records from across Nevada confirm that government workers, on the whole, are enjoying lifestyles far more affluent than do the taxpayers who support them. The Nevada Policy Research Institute files hundreds of public records requests annually with state and local governments across the Silver State requesting these salary records and publishes them on http://www.transparentnevada.com/.
Recently published payroll files for 2010 show two Clark County firefighters made more than $600,000 for the year. In North Las Vegas, the Chief Marshall and Chief of Police both topped $750,000. In Henderson, a city clerk topped $600,000. Some Las Vegas Metro cops topped $500,000. One UNR professor even broke the million dollar mark while teaching within the state’s monopoly on higher education — coming in at $1.37 million.
Certainly, these figures are outliers, but reviews of official payroll files from across the state make clear that many public employees — whose wages reflect political clout rather than economic productivity — enjoy pay that is lavish, compared to those of their taxpaying benefactors.
Upon seeing the figures, many citizens are understandably outraged at the extravagant salaries of some government workers. However, Nevadans should not confuse the symptom with the disease.
Yes, a forced wealth transfer from the state’s taxpayers to Nevada’s governing class is outrageous and has continued for years. But it is a direct result of the arbitrary and political process through which government wages are determined.
To enact real change, Nevadans must either target this process for much greater transparency or break government’s monopoly on the provision of public services.