Arnold Kling  

A Proposal to Save Jobs

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A Wall Street Journal blog writes


State and local governments in the U.S. may be forced to cut 900,000 jobs next year without additional help from the federal government, according to a report released by a prominent liberal think tank Wednesday.

What is 900,000 as a percentage of total state and local government employement? Total government employment (including Federal) is 22 million. As of 2006, state and local employment apart from schools and hospitals was 8 million. I think it's safe to say that total state and local employment is at least 9 million, so that 900,000 represents less than 10 percent.

My proposal is this: cut state and local salaries by 10 percent. That will save as much money as cutting 900,000 jobs. It won't require any Federal aid. And, given the weak labor market, it won't result in governments losing many workers.


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CATEGORIES: Fiscal Policy



COMMENTS (16 to date)
Michael Bishop writes:

Wouldn't this violate law / union contracts?

I know the latter often entail the unfortunate requirement that government lay off the most recently hired employees, rather than the least productive ones.

Bryan Caplan writes:

Yes, but the problem with your idea, Arnold, is that it would work!

Larry writes:

I think it would take a 15% cut, because many benefits aren't pay-level sensitive. But that doesn't change the point.

Doc Merlin writes:

Yah, this doesn't work because of union contracts. I guess the state could give them options, take a pay cut or get fired.

lark writes:

Oh, I'm relieved. I thought you were going to advocate slavery.

But in the long run, to "compete" globally with low wage low regulation economies, in the "free market" requires slavery, don't you agree?

Justin Martyr writes:

What about the principle-agent problem? Do we really want to make government workers even slower and less responsive? They have a big sense of entitlement created by those public sector unions. I think the recession is a good excuse to trim some fat.

Randy writes:

Great proposal, but its already happening. Voters in my city turned down a tax hike and the result will be furloughs, job cuts, or cross the board pay cuts. The local political class is pissed, and I couldn't be happier.

Ryan Vann writes:

I can confirm Randy's comment, at least in my State (Florida). They are already making cuts, and have been stingy on raises for a long time now.

Good point made by Justin. Although, many State workers do not belong to any union. Nonetheless, loafing is pretty commonplace, and even smaller wages might encourage even more.

dave smith writes:

I find it hard to beleive that 10% of the gov't workforce is really threatened.

Dan Hill writes:

It's already happened with my local governments (city and county);10% pay cuts across the board. Because I live in a resort town and sales taxes revenues are down 30% from their peak (all of which was spent on grand projects), it was really unavoidable. Not much push-back from the unions. Plus in a small town, these government workers are well known to those working in the private sector who would love the option of a 10% pay cut rather than losing their jobs!

AlanW writes:

Happened here. My wife works for the city and is getting two weeks of furloughs next year. There have already been multiple rounds of layoffs (including eliminating her old position when she got a new, grant-funded job). Yeah, it's necessary (especially since voters turned down a property tax increase earlier this month), but government employees have to eat, too, so it's not doing the local economy any favors, to say nothing of what the lack of services and parks will do my property values.

Ryan Vann writes:

I find it hard to beleive that 10% of the gov't workforce is really threatened.

Maybe not the Fed's (they have financing options that States aren't privy to), but many states probably have more than 10% of their workforce threatened.

Larry writes:

Hawaii now furloughs its teachers one day/week. And that's before boatloads, not of tourists, but of worse economic news. State revenues are down ~20% from their peak. You can't absorb that and not make real cuts.

CJ Smith writes:

Arnold:

"My proposal is this: cut state and local salaries by 10 percent."

Couple of comments -

1. You go first, and please also cut Bryan and David's compensation accordingly - just let them
know it was your idea beforehand. Your 10% compensation cut will nicely fund my department's unfilled clerical position, which I have been doing for the last year due to our hiring/replacement freeze. It might also pay me a performance bonus for doing my job, my assistant's job, and the job of the unfilled lateral position I cover "because it just has to be done" to address budget constraints.

2. An across the board pay cut is simplistic non-sense - it over penalizes the most highly productive (in terms of relative output per dollar of wages) while underpenalizing the non- or underproductive. Review your own blog posts on the economic wisdom of making forced changes in compensation not related to actual performance criteria and the deadweight losses created.

3. How do you address the truism that a 10% cut to an individual making $100,000 means not going out for dinner, but a 10% cut for an individual making $10,000 means not having dinner at all?

When did you develop this split personality disorder, going from a rational economist to an irrational populist? If anything, your proposal would have the apparently counter-intuitive effect that is so prevalent in economic analyses - you'll weed out the competent, the ambitious and the cheap labor in favor of the incompetent, unambitious, and expensive labor - just what government needs. While we're at it, maybe we should also impose minimum and maximum wage levels, price ceilings and protectionist international trade policies? After all, they're also really popular simplistic solutions, too.

???

David Zetland writes:

Brilliant!

The Cupboard Is Bare writes:

@Ryan Vann:

"...loafing is pretty commonplace, and even smaller wages might encourage even more. "

First, lay a few people off. The remaining employees will be more likely to understand that there are far worse things than receiving a 10% wage cut.

If this sounds insensitive, it's because I come from an industry where sales dropped by as much as 75% (this was early in the year). Those companies that didn't close their doors, reduced their staff by as much or more than two-thirds. When things were at their worst, the remaining employees began to talk among themselves, saying that a four-day week or 20% paycut might be necessary to keep the company going and that they felt it was better than losing their jobs.

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