Public vs. Private Sector Pay

I thought I would wrap up a bunch of the blog posts on public sector versus private sector pay, and union versus non-union. First, in this debate I've come to realize people's prior beliefs are strong, even if uniformed. Showing them data merely results in what has been called the confirmatory bias. They pick out the parts that validate their position and discount the data which does not. There have been many posts and op-eds but let me point you to a few. Adam Ozimek had a useful post which point to the related empirical work:

He linked to three reports (here, here, and here) that show that public sector wages are no higher than, and often lower than private sector wages.

A final point I’d like to make is that a wage premium is not equal to public sector union power. A powerful union may use all of it’s bargaining power to negotiate for absolute job security, which could then select for a different set of workers with lower unobservable skills. In this case you would observe wages equal to or even below private sector wages despite a clearly powerful union. Some would argue this is exactly what teachers unions do.

Part of the discussion of public versus private is also a union versus non-union argument. I think Adam does a good job of discussing it. I would suggest that he should include an interaction term as well (ie union*public) as well.  That said I think the evidence is that there is a wage premium for lower educated union public workers. There is a negative premium for higher educated non union public workers (ie university professors).

On the issues of the relationship between public sectors unionization and spending, taxing and state deficits, John Sides of the monkey cage has produced a bunch of nice bivariate correlations. (here, and a lot more here, and a final roundup here). He notes here, that a single comparison of two points is misleading, but multiple comparison of all combinations of two points is just a regression! Of course, like any regression it is still subjected to an omitted variables bias.

The current state budget shortfalls probably have far more to do with the housing market, than public sector unions. As this graph suggests.

Here is the macroeconomic case against unions.

Useful Comments from Richard Freeman on Labor Unions with this jewel here:

If you had the ear of Wisconsin Governor Scott Walker, who is pushing a bill to strip public sector unions of their bargaining power through the state legislature, what would you say?

I would say: consider what happened to John Howard, former Prime Minister of Australia. When he gained control of both houses of parliament, he did what the governor of Wisconsin seems to want to do: he forced through the legislature (in which his party had a small majority) a policy to radically restrict union activity, with the goal of basically de-legitimising that institution in society. John Howard was thrown out of office in the next election; he even lost his own seat. If you push to undo an institution that is part of the fabric of society, one that many people believe should be available to workers who want it (whether or not they themselves want to be part of it), you might find yourself pushed aside.

Removing collective bargaining from the public sector and lodging all power with employers will not solve the economic problems of U.S. states and cities. It will just remove one mechanism for bringing workers and management in the public sector together to deal with the fiscal problem that neither of them caused.

Here is a good comment from inside higher ed.

Here are my earlier comments. (here and here).