My new column in Forbes addresses a topic I wrote about over 6 years ago, and got a ton of feedback on.
The problem with salaries for government workers like teachers is that, in a monopoly (particularly one enforced by law), the usual checks and balances on compensation simply don’t exist. Let’s say a private school gives its teachers a big raise, and has to raise its tuitions to pay for those higher salaries. Parents are then left with a choice as to whether to accept the higher tuitions, or to look elsewhere. If they accept the higher fees, then great — the teachers make more money which is justified by the fact that their customers percieve them to be offering higher value. If they do not accept the higher tuition, the school withers and either changes its practices or goes out of business.
But what happens when the state overpays for teachers (or any government employee)? Generally, the govenrment simply demands more taxes. Sure, voters can push back, but seldom do they win in a game dominated by concentrated benefits but dispersed costs. On a per capita basis, teachers always have more to fight for than taxpayers, and are so well-organized they often are one of the dominant powers in electing officials in states like California. This leads to the financially unhealthy situation of a teachers’ union negotiating across the table from officials who owe their office to the teachers’ union.
We might expect this actually to lead to inflated rather than parsimonious wages. To see if this is true, we have a couple of different sources of data within the Bureau of Labor Statistics (BLS) to help us.