University of Connecticut University of UC Title Fallback Connecticut

Consistency in wages helps the economy

By Karen A. Grava

Society would benefit more from having more private sector unions than from eliminating public sector unions, says a UConn political science professor.

Lyle Scruggs, associate professor of political science in CLAS, says unions often help lower and middle class people and might help reduce a growing gap between rich and poor in both Connecticut and the nation. Economics research done both in the U.S. and internationally, looking at countries such as Canada, the United Kingdom and continental Europe, supports this.

He is working on a major data collection project funded by the National Science Foundation on the structure of social insurance programs like pensions, unemployment insurance and paid sick leave. The project will cover major policy developments since the 1970s in more than 24 countries.

Studies of political systems abroad and in the U.S. shows that success is relevant — the success of one family may depend on the success of the families around it. So drastically cutting wages for one group, such as public employees, may affect other groups.

Yet Americans tend to attribute individual economic success all to individual effort, and not to social advantages or disadvantages that individuals have little control over.

“There is a sort of circular reasoning that because America has a market economy, if I make 50 percent more than the person in the next cubicle makes, it is all because I am 50 percent more productive, ” says Scruggs. “People underestimate how much our incomes are due to the community and society we live in. A lot of what we earn is not due to how productive we are individually, but how productive the system is. If Bill Gates grew up in a poor country in Africa, he would probably be successful, but not a billionaire. His billions are based a lot on the ‘common wealth’ of this country, not just his individual effort and talent. ”

Some politicians claim public sector employees are overpaid, have pensions that are too generous and have more job security than other workers. Many of these perceptions about public employees are not borne out by reality, Scruggs says. And, to the extent they are, that is not itself evidence of excess.

“The vast majority of state workers are closer to the little guy in their wages, benefits, and lifestyle than to the hedge fund managers, ” he says. Wages and benefits for public employees, on average, are slightly higher than private sector employees. But, once you account for the fact that public sector employees are more educated and older on average than workers in the private sector, the advantage disappears.

As for pensions, many complain that public sector employees have overly generous defined benefit pensions –rather than defined contribution plans or no pensions beyond social security and their own savings.

But in recent years, that has changed for many public sector employees who have been asked to contribute significantly to their pensions or have much less generous pensions than workers did 30 years ago.

“The days of so-called gold-plated pensions for state workers are largely gone, at least in states like Connecticut. The fact is that almost all of this state’s ‘unfunded pension liability’ is the result of pension plans that no state employee hired in the last 25 years gets, ” Scruggs says.

Another reason for confusion is that politicians sometime use the lag between when the promise for a pension was made and when it is paid for to deflect blame onto public employees.

But budgets must be balanced and the question remains as to who will pay to do that. Scruggs notes there are two only ways to balance a budget — raise taxes or cut spending. There are usually political and economic benefits and costs to both options, he says.

The big question is whether and how much taxes need to go up and spending needs to come down. Although the highest income taxpayers have paid comparatively lower rates in recent years, taxpayers are now often reluctant to raise taxes on millionaires and others with high income to pay for public services, because there is a perception that the wealthy “earned all of what they got, and we should not take it away, ” he says.

Cost cutting is often attractive to a lot of taxpayers because they see every week in their paycheck how much they are paying in taxes with no clear accounting for the benefits that they receive for them, he says.

Many of those benefits pay for the “common wealth” that makes America’s standard of living so high. Public sector employees may be easy targets for taxpayers who want to feel in control of their situation.

“People often want accountability but also prefer to have others pay more when things are bad. They feel empowered to demand cuts from the public sector. When it comes to the private sector on the other hand, they feel little power to demand accountability and shared sacrifice. ”

“People do not look at things the government does for them and equate a newly paved road with their tax dollar. They can see every week in their paycheck what their taxes are costing them. They may sometimes resent public employees; they feel that public employment is something they can control, ” he says. “And private sector workers are asking how dare state employees ask for wage increases when I might lose my job? “


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