Hammering Public Pay
To begin with, the “iron law of wages” is not really a law, not a legal law anyway. And economic scholars have never been able to determine which of the gloomy ghouls who founded classical economics — Malthus, Lasalle, Ricardo — first propounded the idea. Even more important, economic development history has proven its concept wrong.
Yet, as Michigan lawmakers attack the proposed 2010-11 budget, one cannot help but think about the rusty old iron law. Why? Because the wages and benefits of public employees have become a big part of the early strategies to resolve the budget. At least they are part of the strategy of those lawmakers who are not willing to look at raises for any taxes.
Consider the comments of a top Senate Republican made to a reporter out in the Captiol’s snowy parking lot. The state really cannot cut services any more, this lawmaker said. But raising taxes is not an option, not to most Republicans. So, this legislator said, getting the needed money out of the budget to maintain services will have to come out of the wages and benefits line.
No one suggests that cutting wages and benefits means lawmakers intend to obey the iron law, but still it seems a bit astonishing, if a little discomfiting, in modern economic times to see policy decisions considered that will make people, well, a little poorer.
A very simplified definition of the iron law is that competition for wages will help drive them down to basically just above subsistence level. Higher wages, according to those who buy into the concept, drive up inflation and depress economic development.
Historically, though, it hasn’t worked that way. For all their inflationary effects, higher wages help drive economic development by allowing wage earners to spend on more than just subsistence goods and to save, which provides liquidity for lending, which in turn spurs investment, and so on and so on, etc. etc.
Consider then the iron law a relic of the feudal days when the educated and elite declared life nasty, brutish and short. Nasty, brutish and short for those struggling for wages, anyway.
For years now, government spending critics have certainly made employee costs a target of their efforts. But mostly the attack has focused on cutting back on government functions, ratcheting down the number of people working in the public sector, not necessarily cutting their earnings. Because even critics of government spending don’t suggest public workers are buying yachts off the taxpayers’ dime.
But cutting the cost of those wages and benefits is central to resolving the upcoming budget. Even Governor Jennifer Granholm has bought into the argument. She did not call for wage cuts. But her administration did push for the state’s non-union represented workers to not get a 3-percent raise next fiscal year. It was a push that won the concurrence of the state Civil Rights Commission.
Ms. Granholm also called for dramatic changes to the state’s retirement and health care benefits for state workers, and for those workers “eligible” for retirement (eligible by time worked, not necessarily financially) who choose not to retire.
And to those moves even her critics largely applauded.
But Ms. Granholm also called for tax increases in her budget proposal. She is somewhat confident when the final accounting of an all-cuts budget is considered, lawmakers will reluctantly accept that tax increases are needed.
Tell that to the lawmaker in the snow, not willing to cut the numbers of state workers any further, but saying — reluctantly, clearly reluctantly — that public wages and benefits have to be cut.
Tell that to Senate Majority Leader Mike Bishop (R-Rochester), who said he was fixated on eliminating the 3-percent increase that unionized state workers are scheduled to receive.
Tell that to a business group lobbyist who told a reporter recently that state wages should be cut. Times are tough, he said, and people are afraid so they will be willing to work for less money. (Okay, that attitude does strike one a little like we’re going back to the nasty, brutish and short days.)
And tell that to unionized state workers who are legitimately worried they will lose that 3-percent raise. Losing it would rub salt in the wounds they feel after agreeing to take other cuts this year to help cut spending, and losing it could threaten the chance that members of UAW Local 6000 will vote to concur with cuts their leaders negotiated this month with the state.
But, as lawmakers might say, tell it to the private sector workers who have to pick up the costs of their retirement, more and more of the cost of their health insurance and may have endured pay cuts in these tough times.
Yet, while lawmakers and lobbyists talked openly about cutting wages and benefits, there was a side story unfolding. Before several legislative committees, the problems that budget cuts overall are causing the state were being outlined.
Even Senate Majority Floor Leader Alan Cropsey (R-DeWitt) almost unwittingly acknowledged those problems even as he called for the state to control its costs. Displaying a slide during a committee meeting that showed overall arrests are down despite high levels of felony crimes committed in the state, Mr. Cropsey said he presumed the lower number of arrests was due to the fewer number of cops on the street. Why are there fewer cops on the street? Because local governments cannot afford them.
Will cutting public workers’ pay and benefits provide enough money to get those cops back on the street? So far, no one has been able to show it will.
Which could mean that while the impetus now is driven to cutting employee costs by cutting their wages and benefits, the back story of the ongoing effects of budget cuts, and the long-term effects those cuts could cause, may make that drive less than ironclad.
John Lindstrom is publisher of Gongwer News Service. For nearly 50 years in Michigan, Gongwer News Service has provided independent, comprehensive, accurate and timely coverage of issues in and around Michigan’s government and political systems. For subscription information, including a free trial, visit Gongwer online.
11 responses so far ↓
1 Obvious in Lansing // Feb 26, 2010 at 7:06 am
How many times does somebody have to tell us that the current compensation (including retirement) systems for public employees is unsustainable? While the vast majority of the public probably would not want to cut anybody’s compensation, we can not continue to provide lavish benefits (and salaries in some cases) for public sector employees. We can either address the problem incrementally now or we can wait a couple years and then go bankrupt. I hope our leaders are more convincing than the drama queens that will come out of the woodwork.
2 Get Real // Feb 26, 2010 at 11:47 am
Look at what’s happening in our cities. After furlough days and benefit cuts our cities still have to lay off workers because of the lack of funds. The State cannot rely on cutting wages and benefits to solve the problem. They will have to make cuts/layoffs and downsize state government further. If the public isn’t willing to pay higher taxes. The services must be cut.
3 binny // Feb 26, 2010 at 12:24 pm
Obvious in Lansing.
Still waiting for my lavish benefits. You haven’t mentioned the report that backs that up. Yes, the public sector feels for the sacrifices of the private sector, but, they have been sacrificing fore 10 years now. It gets to a point that enough is enough. The are willing to work at making concessions, but Lansing says one thing, then goes in the back door and tries 2 other things behind workers backs.
4 oops // Feb 26, 2010 at 1:18 pm
Civil Service????
But cutting the cost of those wages and benefits is central to resolving the upcoming budget. Even Governor Jennifer Granholm has bought into the argument. She did not call for wage cuts. But her administration did push for the state’s non-union represented workers to not get a 3-percent raise next fiscal year. It was a push that won the concurrence of the state Civil Rights Commission.
5 fred akers // Feb 26, 2010 at 1:39 pm
I work for a NYSE company. We are proud of our pay and benefits. When I needed to hire an assistant a few years ago, I found I couldn’t hire a state employee.
I couldn’t afford one. Their package was too good. Right then I knew Michigan’s state budget was in trouble and would eventually be too much to carry for taxpayers. So how long before policymakers accept this?
6 larold // Feb 26, 2010 at 2:35 pm
I keep hearing about the pay cuts in the private sector but I don’t see anyone sighting them. Next time some elected official tells this to Gongwer, will you please ask for names and dates or those that received pay cuts, then publish the pay cut information? I’ve seen this urban legend published in every news media outlet in Michigan, but never once with the corresponding proof of the claim. Everyone knows the UAW agreed for less in auto plants and that non-automakers get less money. Where are all these other cuts people talk about? Names and dates, please.
7 civilservant // Feb 27, 2010 at 12:28 am
When I first thought about working for the state, it was the least desirable job available. And the lowest paying. Now we are the bad public employees who are paid too much and our wages and retirement should be cut. Thanks.
I pray that people would open their eyes and see what this as it truly is. POLITICS.
The progressive nature of our politician’s is becoming evident. Wake up. They want to redistribute the wealth of their civil employees to you but don’t worry, yours will be next. The state is short on money because they spend everything we give them. If they had more it wouldn’t be enough. STOP SPENDING. Have them pay the bills and return what is leftover, most families would manage the rest of the money better.
8 binny // Feb 27, 2010 at 8:05 am
The private sector needs to get with it and see how the newspapers and Legislature are outright lying to you.
This raise which has been portraid as the workers taking from the public, well lets look at some facts.
The state has been lying to you on a number of points. For example, they have not asked the employees to give up their raise. What they did do was meet with the Union, agree to send out a concession proposal that the employees would vote on. This proposal would affect medical benefits, banked leave time, etc, etc. The one point they put in there is if they agree to this they would leave their raise alone. Yet … the vote is not even done and they are telling the private sector that the workers are greedy and they are going to try taking their raise away. Wait??? Didn’t they just send out a ballot that stated the would NOT touch that raise? This is all politics to get the private sector riled up and to get brownie points. The truth is not being put out there.
9 Worker // Mar 1, 2010 at 7:29 am
Does anyone that Michigan is paying out over $4 BILLION dollars a YEAR just for public assistance alone? State workers did not get their pay increace in 2009 and only received a 1% raise in 2010. How would you like be guaranteed a raise to have it taken away? Many of these people are not making very much money and only work for the state because of the benefits, and with the states current condition and a new computer system that is slow and doesn’t work properly, they are being threatened by clients on a daily basis! … now they are threatened with their pay increase being taken away? What needs to be cut is some of the ‘public assistance’ that Michigan receives.
10 Richard TenHoor // Mar 1, 2010 at 8:11 am
Hmmm. I am a retired State Employee. I worked for the State for over 25 years. The amount of money I paid for health insurance has gone up roughly 500 % since I retired 5 years ago. The proportion of the pension that I received that has gone for health insurance has risen from roughly 9% to 33% of my pension. I have had to return to work just to pay for the insurance. The state legislature wants to stop future legislators from receiving the health benefits but will not affect theirs. Seems rather self serving. Check on the lavish benefits State Employees receive and you may find they are not as lavish as you think.
11 Worker 2 // Mar 4, 2010 at 5:27 pm
It seems to me we have a perception issue brought on by self serving interests. When, in the neighborhood of 90% of the GF/GP revenues are being expended for Corrections; Health and Welfare; and Education, it seems to me very little GF/GP is going to fund payroll. The other item to keep in mind is the total value of tax credits is now exceeding tax collections. This is not a situation brought on by current state payroll costs.
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