Thursday, March 08, 2012

Public Sector Pensions

City pensions are much in the news, and are being overhyped a bit but are a legitimate issue. I am not one who believes that city employees are, per se, grossly overpaid, but the pension system is distorted and is out of line with the private sector. The claim that generous pensions are a trade off against low pay scales does not really stand up to careful scrutiny.

Originally, that claim was valid. Cities and other local governments, strapped for cash and unable to raise wages to competitive levels, gave pensions in lieu of wage increases. As time went on, though, those generous benefits were conveniently forgotten as public sector unions bargained for higher wages and politicians, with governmental coffers flush with tax revenues in a booming economy, granted those wages in exchange for union support of their reelection bids.

If you look at wages in the public sector you will generally find that, while not really overly generous, they are certainly competitive with the private sector. Here are a few of the salaries paid by the City of San Diego.

Auto body mechanic: $48,800
Carpenter: $47,700
Electrician: $51,600
Painter: $45,700
Custodian: $28,800

Checking with want ads and people I know in some of those trades, that appears to be pretty much the same rates that prevail in the private sector. The prevailing union wage for electrician in San Diego, for instance, is $25/hour, which works out to $52,000 per year, compared to the city’s rate of $51,600.

So, are pensions which are far more generous that anything that private sector workers in any industry are able to secure justified for workers employed by local governments? My sense is that at one time they might have been, but they certainly don’t seem to be justified now.

1 comment:

bruce said...

One of the more blatant distortions is pension spiking, where the last few years are artifically inflated and the pension is based on that. And retirement early for public safety workers. And of course, double dipping. The rules can and should be changed to prevent abuse.

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