The Sin of Wages

How dire is a government shutdown? Respectable people have made respectable arguments on all sides of that issue. But there’s nothing respectable about the chorus of voices pointing to the pain of furloughed government employees — and pretending this is a reason to end the shutdown, whereas it’s clearly a reason to prolong it.

The more painful the furlough, the more overpaid the worker must have been in the first place. People who are paid fair market wages don’t get nearly so upset about losing their jobs — or losing a few weeks of work — as do people who are paid more than their skills reasonably command. Of course there’s always pain associated with an unexpected disruption in your work schedule, even if when your wages are entirely reasonable. But cries of extreme pain amount to admissions that these workers have been ripping the public off for years.

Even without that observation, the pain of interrupted wages cannot by itself be a reason to restart the government, because it is exactly offset by the relief of those who pay those wages.

To make an honest argument in favor of a government operation, you’ve somehow got to point to the social benefits of that operation. In some cases that might be easy. In other cases, it’s hard but possible. But those who shirk the task completely, by focusing not on lost productivity but on lost wages, are just making themselves ludicrous.

After all, if lost wages were the issue, we could solve the problem by sending out paychecks without asking anyone to show up for work. (More precisely, we could pay some fraction of a full wage, to make the new package of leisure-plus-reduced-wage just as desirable for the worker as the old package of showing-up-for-work-plus-full-wage).

Unless your argument addresses the question of why it’s useful to have these people at their desks, it comes down to an argument for transferring money willy-nilly to a certain class of people, just because those people have been lucky enough to find government employment at some time in the past — and the more desperate for relief you claim they are, the less deserving you reveal them to be. If we’re looking to make more income transfers, these would not be my first choice of recipients.

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114 Responses to “The Sin of Wages”


  1. 1 1 F.F. Wiley

    Not to mention that both parties have said that furloughed workers will get back pay (this passed unanimously in the House). These are almost certain to be paid vacations not true furloughs.

    Nice post.

  2. 2 2 Jonathan Campbell

    “Even without that observation, the pain of interrupted wages cannot by itself be a reason to restart the government, because it is exactly offset by the relief of those who pay those wages.”

    In dollar terms it may be offset, but in effect on human suffering it is likely not. Taking $100k from each of 10 people and then distributing $1 to each of 1m people cannot be in general said to be neutral from a utilitarian standpoint.

  3. 3 3 Michal

    Playing devil’s advocate – those people weren’t fired, they were furloughed. They aren’t supposed to start looking for a new job. They are screwed whether they deserved their pay or not.

    A humane administration would fire them, instead.

  4. 4 4 Phil B

    I’m having trouble with the rationale for this assertion:

    “…cries of extreme pain amount to admissions that these workers have been ripping the public off for years.”

    If I’m working at a normal job and living hand-to-mouth, getting furloughed will cause me extreme financial stress. Why does making it a government job make me a scam-artist?

  5. 5 5 Pat T

    Michal, what’s stopping them from looking? You can lock me out of your office but you can’t lock me out of everyone’s.

  6. 6 6 Al V.

    The challenge is that Federal employees’ jobs don’t always have a precise equivalent. If I’m a park ranger, I can get a job for a state park service, although it might take a while to find a job near where I live, or to relocate.

    If I monitor electronic communications for the NSA, where do I look for another job? I guess Russia might be happy to hire me, but I don’t see many comparable positions in the private sector.

  7. 7 7 Steve Landsburg

    Jonathan Campbell (#2):

    Taking $100k from each of 10 people and then distributing $1 to each of 1m people cannot be in general said to be neutral from a utilitarian standpoint.

    But if your goal is to take $100K from each of 10 people and distribute $1 each to 1m people, why would you choose those 1m people to be government workers, when there are so many poorer people in the world?

  8. 8 8 Frosty

    @Phil B #4
    In “The Road Not Taken”, Steve criticizes Krugman for publishing claims without sufficient explanation and says …apparently the last thing Krugman wants you to do is think about it, since he’s already told you the answer, and seems to presume you won’t have the slightest interest in where it came from.

    Now, in this misguided post, Steve spends a paragraph asserting The more painful the furlough, the more overpaid the worker must have been in the first place [Emphasis mine]. Absent from the post is any reasoning or evidence supporting this assertion. Therefore, apparently the last thing Landsburg wants you to do is think about it, since he’s already told you the answer, and seems to presume you won’t have the slightest interest in where it came from. Relaying Steve’s previous advice, Don’t ask how he knows; the ways of the Oracle are mysterious and beyond human ken.

  9. 9 9 JCG

    I would think that even if government workers were being paid a competitive wage that a shutdown of 1-2 weeks would still be painful for them because it’s typically difficult for highly educated workers to find a job that matches their skill sets for just a week or two. I think your case is much stronger when you consider the scenario in which the workers are simply laid off instead.

  10. 10 10 Pat T

    Al V #6

    If worker with no skills useful in the market loses their job and feels extreme pain then they were overpaid in the first place.

    Job mobility doesn’t require precise equivalency.

  11. 11 11 suckmydictum

    @8

    There are a few things SL could mean when he refers to “pain” caused by the furlough.

    He could mean how much and how loudly people are bitching about it. Both of these quantities track with how overpaid furloughed employees are. If your parents give you a 100 dollars weekly allowance to take the trash out, you probably are going to be more pissed when they stop giving you 100 dollars a week to take the trash out than if they were paying you 5 dollars for the same job and they take that away.

    The other thing he could mean is how easy it is to find alternative employment at the same marginal wage as your government job. Clearly, if your marginal wage is inflated at the government job, your difficulty finding a non government job relies on how overpaid you were.

    Both of these possible meanings give a clear result, so why do you think SL is krugmaning us?

  12. 12 12 Frosty

    @11 Both of these possible meanings give a clear result, so why do you think SL is krugmaning us?

    SL criticized Krugman for asserting a conclusion without explanation. In this post, Steve asserted a conclusion without explanation.

    Your speculation on what SL might have meant or why SL might be correct seems to strengthen the argument that SL didn’t offer sufficient explanation.

  13. 13 13 nobody.really

    1. Eh. Landsburg’s post seems reasonably clear to me, and to some others here.

    Landsburg is arguing that in a competitive labor market, workers and employers are fungible at the margin. So you should have no special attachment to your job. Basically, you should hate your working conditions so much that you’d be indifferent if you had to leave to go work elsewhere; and you should be reasonably confident that you could find an equally shitty working situation elsewhere. You should be constantly on the verge of quitting, and your employer should be constantly on the verge of firing you. If you’re not contemplating quitting every hour, you’re clearly being paid too much – or otherwise, you’d consider quitting more often. And if your boss isn’t constantly considering firing you, you’re clearly being paid too little – or else he’d question your value to the firm more often.

    2. I hope most of us will say that this stylized version of the labor market seems – unfamiliar.

    Perhaps employees and employers are fungible at the start. But over time, I sense we move away from the competitive market and into a monopoly/monopsony mode. That is, we specialize. Though experience, I come to fill a valuable niche for my employer. For example, perhaps I’m the guy who can talk the boss down when he’s having a really bad day or something. If I quit, my boss might have a hard time finding a replacement. But by the same token, I’d likely have a hard time finding an environment in which I could display this peculiar relationship-based skill. In short, my value to my employer is greater than my value to other employers; and my employer’s value to me if greater than my employer’s value to other employees. We generate surplus; we fit.

    So now we may not have a competitive labor market per se, but we have Mutually Assured Destruction. If either of us withdraws from the relationship, we will hurt our own interests in ways that cannot be fully repaired at the margin.

    And then the furloughs come. Bosses wring their hands with anxiety about the prospects that their cherished, well-honed team of employees may now scatter to the four winds. But bosses are a minority. The larger group is the employees. And they’re expressing comparable anxieties to the bosses, losing their own peculiar niche in which they have learned to maximize their productivity. But because there are more of them, we hear about their anxieties while we don’t hear about the boss’s.

    3. Traditionally, government employees might have an especially pronounced niche. Specifically, the traditional white-collar government employee earns a lower salary than her private-sector counterpart, but take part of her compensation in job stability/pride of mission/etc. So when government shuts down, this is experienced as a breach of an implied term of employment. If this dynamic obtains, it would hardly be surprising that these employees would be pissed.

  14. 14 14 Joe

    First, what nobody.really said.

    Second, “Unless your argument addresses the question of why it’s useful to have these people at their desks, it comes down to an argument for transferring money willy-nilly to a certain class of people”

    Our host writes as if these positions had been created without any deliberation or consideration of the cost and value of the positions. Never mind that we have a political process that largely determines what those positions are, and that somehow, through that process, it was determined that they were valuable. Landsburg has to personally be convinced de novo of the value of every position every time. That is the definition of unreasonable and it is one of the reasons that he is not even worth disagreeing with.

  15. 15 15 roystgnr

    Landsburg refuses to accept “somehow; QED” as a convincing argument? How unreasonable.

    You’re not equally foolish, though, right? After it’s been explained to you that the political process found value in invading Iraq, for example, surely you wouldn’t ask for additional utilitarian evidence?

    Good. In that case:

    The political process deliberated, considered, and finally somehow determined that the most valuable thing for our government to do right now is to shut down all “non-essential” activities while we wait to see which bunch of politicians will lose a staring contest with their opponents. Q.E.D.

  16. 16 16 Ken Arromdee

    @11: “More pain” could also refer to, for instance, how close someone is to starving, having their house foreclosed upon, etc. Someone who has been poorly paid probably hasn’t saved up much money to handle unexpected events, and therefore is more likely to starve when deprived of income than someone who has been well paid. Someone who has been poorly paid also will find that switching costs and transaction costs are a bigger deal (it’s hard to move to get a job when you can’t pay the movers and your relatives will no longer be able to care for your children). And someone who is poorly paid might find himself limited to what new jobs he can take–for instance, if the job doesn’t pay enough that he can afford to buy a car, a job that’s 2 more miles away can be painful just because of the extra walking distance, and a job that’s 10 miles away may be completely impractical.

    In that case, Steven is wrong when he asserts that the more people are paid, the more pain they will feel when losing their job.

  17. 17 17 Joe

    roystgnr

    “Landsburg refuses to accept “somehow; QED” as a convincing argument? How unreasonable.”

    It’s not that he doesn’t find it convincing, it’s that he ignores it altogether and simply starts from his priors.

    “The political process deliberated, considered, and finally somehow determined that the most valuable thing for our government to do right now is to shut down…”

    And it did it wholesale, without consideration of whether the positions were valuable or not. And even the people who shut it down don’t claim that all of those positions should go away. Sorry, that’s not even a data point.

  18. 18 18 Bob Thompson

    ‘To make an honest argument in favor of a government operation, you’ve somehow got to point to the social benefits of that operation. In some cases that might be easy. In other cases, it’s hard but possible. But those who shirk the task completely, by focusing not on lost productivity but on lost wages, are just making themselves ludicrous.’

    This I can understand and support. So, I like the idea of distinct CR’s for each programmatic agency similar to what has already passed for the military. The bundling and consequent deal-making and horse-trading needs to curtailed. Done properly, this could displace the sequester and be more effective as well.

    And, we could actually remove some deadwood from the employment pool and potentially stop some of the bureaucratic abuses (crimes) that have been surfacing recently.

  19. 19 19 suckmydictum

    @16

    Your hypotheticals are completely plausible and compelling except that we’re having a discussion about people on government wages, which is a demographic better paid than people typically starving or those needing to walk to work.

  20. 20 20 prior probability

    Good post, but couldn’t the same argument be applied to tenured academics?

  21. 21 21 Jack

    So let’s say the government wants to overpay people in the jobs they higher them for. Is it the position or the person that’s overpaid or I guess both? For example, you could argue that an average accountant makes $40,000, but what if you wanted an above average accountant? So you offer $60,000 and hopefully attract better candidates for your government accounting position. Would the gov purposely hire the average candidate at $60,000? I get your point that the louder people scream, perhaps the more they’re overpaid. My point though is why would you necessarily expect higher screams to come from government employees than private sector employees?

  22. 22 22 Ken Arromdee

    @19: While I used starvation as an example, it works with a progression of other types of suffering. For instance, imagine someone who has a lot of expenses–medical, college, legal, etc. You can easily be wiped out and put into debt even under a government employee’s wages, and losing your job at this point would really hurt. If your job is higher-paying, you would have less debt or none at all (since your higher-paying job would have made it easier to absorb the expenses due to higher savings, as well as lead you to have paid any remaining debt faster).

    It works with smaller needs as well. If you have $100000 in the bank, you’re furloughed, and you need your car repaired, you won’t notice it much. If you have $1000 in the bank, because your job paid less and you thus could save $99000 less, and then you get furloughed, having to fix your car can hurt.

  23. 23 23 Jonathan Kariv

    One of the assumptions here (in the original post) seems to be that a fairly paid individual who loses their job will (almost) immediately find an equivalent job because our stylized view of the labour market has supply and demand for jobs in some kind of equilibrium. I’m not sure what proportion of people are employed in goverment jobs but it strikes me that if it’s any macroscopic proportion of the population that them all being let go at the same time changes the equilibirum in the labour market? i.e. even if the job you had would overpay you post-firing it might be fair pre-firing, if say (20%)of jobs dissapeared at the same time.

  24. 24 24 Steve Landsburg

    Jonathan Kariv:

    One of the assumptions here (in the original post) seems to be that a fairly paid individual who loses their job will (almost) immediately find an equivalent job

    Where do I need that assumption? It seems to me that all I need is the observation that it’s more painful to lose a $50,000 job than to lose a $40,000 job, assuming the work is the same.

  25. 25 25 blink

    As suggested, benefits determine whether government services are valuable and, ultimately, whether they should exist. Wage costs figure on the negative side of the ledger.

    However, I disagree that “extreme pain” indicates anything about whether one is over paid. First, it could simply mean that one is *highly* paid. Then, being furloughed costs a large amount of money — it causes extreme pain. By analogy with the NFL, a one-game suspension is much more painful for a star quarterback with a large salary than a backup safety making the league minimum.

    Second, it could mean that one is very *lowly* paid. For someone making barely enough to cover rent and food, a sudden loss of income may qualify as “extremely painful” quite apart from whether the person is paid too little or too much.

  26. 26 26 libfree

    Steven,

    The employee isn’t ripping off anyone. They did what anyone in a free market would do and that is to take the highest available wage. If the government doesn’t need these employees, we should do the responsible thing and fire them. I would be embarrassed if I treated the worst of my employees this way.

  27. 27 27 RJ

    Even without that observation, the pain of interrupted wages cannot by itself be a reason to restart the government, because it is exactly offset by the relief of those who pay those wages.

    No it’s not necessarily.

    In order to demonstrate that, you’d have to show the dollars saved by tax payers offsets the damage done by lack of consumption of the 800K employees whom are not spending their income.

    People who are paid fair market wages don’t get nearly so upset about losing their jobs — or losing a few weeks of work — as do people who are paid more than their skills reasonably command.

    Wait, so you’re telling me a CEO of a successful corporation suffers more pain than a person who lives paycheck-to-paycheck, possibly supporting a family, simply because s/he’s paid more when s/he’s furloughed, or that the same said individual will flip out more?

    That’s ivory tower of you.

  28. 28 28 Jonathan Kariv

    Steve: On a 2nd reading yes it seems that what you’re assuming is what you said in comment 24 not what I said n comment 23. apologies.

    The point I was going for is that A is more painful than B and possibly more painful than C, when A,B,C are as follows:

    A: Lose a 40K job when there are suddenly fewer jobs to go around.
    B: Lose a 40K job when there are the same number of jobs going around.
    C: Lose a 50K job when there are the same number of jobs going around.

    The model you’re proposing seems to not take the differences in A and B into account. Effectively assuming A and B are equally painful.

  29. 29 29 Kirk

    It should be pointed out that furloughed workers had just received a paycheck on the 1st and thus have not even yet reached the point of losing a paycheck to the shutdown. As of this moment they have received a benefit (vacation) at no cost (lost pay). Call me on the 15th.

  30. 30 30 Daniel

    @Steven Landsburg 24,

    50k>40k, therefore government workers overpaid? So if a government worker is getting paid 35k, and loses their job, and they’re living paycheck to paycheck, they feel great financial hardship, because the amount of time it will take them to find another match in employment for their skill level will take longer than they have to make financial payments which either carry high interest rates, large penalties for late payments, and this cause them greater financial hardship, and so it is painful for them to lose their income, how is this automatically evidence that they were getting overpaid?

    In contrast if that same worker was being paid 50k and thus was getting overpaid, and had been saving and not having to live paycheck to paycheck, and when they suddenly lose income, they have time to find another match at a lower rate since they were being overpaid to begin with, and thus do not feel as much pain as the worker getting paid a fair wage, couldn’t we say that lack of complaints of extreme pain could also be evidence that workers are getting overpaid?

    How does it follow logically that complaints of extreme pain are necessarily evidence that workers are getting overpaid? I’m just not seeing it, and your lack of evidence to support it seems to suggest, as Frosty (8) had suggested that you didn’t really think about your assumptions before you posted.

  31. 31 31 Brandon Berg

    The thing that strikes me as really silly about this is that federal workers have pretty much the most secure jobs in the country. The federal government won’t go bankrupt and doesn’t really do layoffs, and it’s very, very difficult to fire federal workers. This is basically the only that to their continual employment, and it’s happening for the first time in 17 years. And yet those of us who face the risk of layoffs, employer bankruptcy, and firing are supposed to feel sorry for them over this?

  32. 32 32 Daniel

    My argument obviously rests on Diamond, Mortensen, and Pissarides, search friction work, since there’s no reasonable way you can assume that workers will not have friction in finding new employment in the real world, even if they are being paid a fair wage at the job they are exiting.

  33. 33 33 nobody.really

    By Landsburg’s analysis, who are the most overpaid federal employees?

    I pondered this question during the aftermath of the Spaceshuttle Challenger disaster. After all, every person on the spaceshuttle was basically a lottery winner: People would line up for miles to be in their shoes.

    So a few of them died in a fireball. Why should they warrant any compassion?

  34. 34 34 Daniel

    @ Landsburg,

    Sometimes I think it’d be helpful if you sit back and try to empathize with the people you are making an argument about before you make a post. I just don’t think you always think through all the possible motivations of the people you’re posting about before you do.

  35. 35 35 Harold

    #24 Your post contains lots of comparatives -pain vs extreme pain for example. I don’t think we have a comparator here that shows that the public sector workers are exhibiting extreme pain compared to private sector workers’ reasonable pain in the same position.

    You postulate a reasonable explanation for the level of expressed pain, but it is not the only possible reason, as commenters above have said. The best we can say is that the level of outrage may indicate overpayment – it is far from conclusive.

    You say their pain of lost income is balanced by the gain of the people who pay them, but I don’t believe that is the case. Apart from the comment by Jonathan Campbell that a concentrated loss may nopt be balanced by a distributed gain, there is the matter of expectations. An unexpected loss of all your income is likely to cause much more problems due to its unexpected nature.

    There is another aspect that relates to a drum I often beat – that is loss aversion. When someone already has something, they apparently regret its loss more than they desire a gain of the same magnitude. If this is generally true, then exchanges will end up with a net decrease in utility, as the losers lose more than the gainers gain.

  36. 36 36 Kirk

    Not really on topic, but everyone should read and heed so I’m gonna say it:

    Lesson of the Shutdown: Have an Emergency Fund. Seriously. 3 months expenses. Comes before retirement savings, college savings, 401K, new car, new tv. Seriously. Emergency Fund. Biggest financial blunder that everyone makes!

    Spread the word…

  37. 37 37 Floccina

    I somewhat agree but:

    1. Everyone with a job is overpaid.
    2. People develop specific skills for a job that are not easily adaptable to another organization or job.

  38. 38 38 Daniel

    @Floccina,

    Shouldn’t #1 read, except in circumstances of monopsony?

  39. 39 39 Steve Landsburg

    Daniel (#38): In circumstances of monopsony, there’s a small number of marginal employees and a whole lot of inframarginals. In circumstances of perfect competition, there’s a small number of marginal employees and a whole lot of inframarginals. I take Floccina’s point to be that (nearly) everyone with a job is inframarginal. That’s just as true under monopsony as under competition. So I haven’t the foggiest idea what your remark might mean.

  40. 40 40 Steve Landsburg

    Daniel (#34): Sometimes I think it’d be helpful if you sit back and try to empathize with the people you are making an argument about

    It’s always a good idea to empathize! And it’s always a bad idea to empathize selectively. If A is making payments to B, we should empathize both with B’s desire to keep receiving those payments and with A’s desire to stop making them. The whole point of economics is to keep us honest about this.

  41. 41 41 Steve Landsburg

    RJ (#27):

    In order to demonstrate that, you’d have to show the dollars saved by tax payers offsets the damage done by lack of consumption of the 800K employees whom are not spending their income.

    If the goal is to transfer money to people who will spend it, why would you choose these particular 800K people to be the recipients? I bet there are others who would spend even more of it. Coke addicts, for example, are a pretty good bet to spend their incomes quickly.

    Any argument that says the shutdown is bad because it eliminates (or, more accurately, postpones) the transfer of income has to explain why this particular transfer is especially desirable. I think it’s wildly implausible that you could construct a non-ludicroous version of such an argument.

  42. 42 42 Daniel

    @Landsburg 39,

    Floccina didn’t say that “most” people with a job are overpaid, she said that “everyone” with a job is overpaid, quite different than what you imply in #39. So perhaps it was just a misunderstanding about wording. To me a worker is overpaid if they are paid more than the marginal revenue generated by employing them, and they’re underpaid if they are paid less than the marginal revenue generated by employing them. Are you implying that that there are no workers under monopsony conditions that are paid less than the marginal revenue generated by employing them, or is your definition of underpaid versus overpaid different than mine?

    Is your definition that someone is overpaid if they are paid more than their reservation wage?

  43. 43 43 Daniel

    @Landsburg 40,

    Where did I imply that we shouldn’t empathize with those whose wages are transferred to government workers?

    You seem to think that the only costs to the person laid off are their loss of wages, while ignoring the financial costs associated with “search times”, leading me to believe that you weren’t taking the time to think through all of the possible costs that incur to people when they are laid off. These are not zero-sum costs in the same way as their wages are, and they are not necessarily forcing other people to search for work if they are not laid off. So I was just remarking that a good economist should put themselves in the shoes of both parties to try to think about all the associated costs and benifits to an action before making a blog post about it.

  44. 44 44 Daniel

    @Landsburg,

    If you seem to think that I’ve missed other costs that the tax payer incurs besides the taxes confiscated for the wages paid to government workers feel free to point that out. It’s just your original point was that the more pain someone feels when they are laid off, the more somehow that this is evidence that they are being overpaid, and you have still yet to explain the logic behind this prior. I and others have pointed out barriers to seeking other employment and search costs during a shutdown, and you have yet to respond to any of it.

    I don’t think anyone here would be arguing that government work shouldn’t be justified by the marginal benefit that it brings to society, but I also don’t think pointing out the costs to the people that are having pay delayed is an irrelevant cost to consider in this discussion.

  45. 45 45 RJ

    If the goal is to transfer money to people who will spend it, why would you choose these particular 800K people to be the recipients? I bet there are others who would spend even more of it.

    You could, I don’t disagree with that. I could see from my OP how you would infer that I meant the 800k federal employees specifically, but I really didn’t; this was just analyzing your claim from a spending angle. Error on my wording.

    Any argument that says the shutdown is bad because it eliminates (or, more accurately, postpones) the transfer of income has to explain why this particular transfer is especially desirable.I think it’s wildly implausible that you could construct a non-ludicroous version of such an argument.

    How come?

    Don’t get me wrong, I agree with the main theme of your post in that 1) (most) Federal workers are overpaid and 2) in order to justify their existence, you need to show social benefits outweigh the costs.

    However, given the particular circumstances of the US economy, saved taxpayer money spread out most likely translates into increased savings, which bids down the interest rate and increases the availability of capital for savers to give to borrowers. Interest rates are already low and have been so for quite a bit of time and recovery anemic, so it seems that investment spending on the borrower side isn’t a greater plan than transferring the income to individuals who would spend it and thus give borrowing entrepreneurs a greater incentive to invest by borrowing.

    Why would that be ludicrous?

  46. 46 46 Daniel

    @RJ 45,

    “Don’t get me wrong, I agree with the main theme of your post in that 1) (most) Federal workers are overpaid”

    Maybe you can explain to me what the definition of overpaid that we’re using here is? Is someone overpaid if they’re being paid more than their reservation wage?

    This doesn’t seem like a very good definition of overpaid to me as it does nothing to tell us about whether we should or should not pay them that wage, in the same way that it does nothing to tell us about whether we should or should not pay them that wage in the private sector.

  47. 47 47 RJ

    Maybe you can explain to me what the definition of overpaid that we’re using here is? Is someone overpaid if they’re being paid more than their reservation wage?

    It was stated in the post; it’s the fair market wage. Do you require and explanation for what that constitutes?

    This doesn’t seem like a very good definition of overpaid to me as it does nothing to tell us about whether we should or should not pay them that wage, in the same way that it does nothing to tell us about whether we should or should not pay them that wage in the private sector.

    If you have a homogenous good being sold at two different vendors, one of whom charges $10 and the other $20 for it, and you pay $20 dollars for said good, then, all else being equal, you overpaid. This applies to labor as well.

    Objectively speaking, they are.

    As for should or should not? Simple cost benefit analysis. Taxes cause deadweight loss. Paying for certain government services via taxes that do not give societal benefits greater than or equal to the deadweight loss accumulated from said taxes is a very good reason not to overpay federal workers.

  48. 48 48 RJ

    I hate doing multiple posts or typing more than needs to be said, but in learning from my past mistake in wording on this particular post…

    Lest you say, Daniel, that if SB > taxes paid to federal workers who are still paid well above a fair market wage, this is still a problem. By paying them less you can decrease the tax rate needed to fund services and reduce the deadweight loss as well.

  49. 49 49 Daniel

    “If you have a homogenous good being sold at two different vendors, one of whom charges $10 and the other $20 for it, and you pay $20 dollars for said good, then, all else being equal, you overpaid. This applies to labor as well.”

    But we don’t have a homogenous good being sold in two different markets.

    “Taxes cause deadweight loss. Paying for certain government services via taxes that do not give societal benefits greater than or equal to the deadweight loss accumulated from said taxes is a very good reason not to overpay federal workers.”

    Agreed. Except it’s not always an easy task to determine the marginal benefit to society of employing an extra federal worker, so it’s also difficult to determine whether the benefit out-ways the deadweight loss. I don’t think anyone would argue with this point.

  50. 50 50 iceman

    It seems some here are equating a deductive argument based on a logical observation – e.g. all else equal, losing more money is more painful than losing less – with a policy prescription based on supposing or alleging an empirical relationship.

    Interestingly most of the criticisms here seem to fall into the latter category, or even pure conjecture on why all else might not be equal in all cases – “but what if the person who loses the money was sicker or otherwise worse off than…?” This also can’t become a utilitiarian argument that transfer payments should never be reversed?

  51. 51 51 RJ

    But we don’t have a homogenous good being sold in two different markets.

    Then how exactly are we having this argument?

    Agreed. Except it’s not always an easy task to determine the marginal benefit to society of employing an extra federal worker…

    Then all the more reason not to pay them so well above the fair market wage.

  52. 52 52 Daniel

    @Iceman 50,

    Landsburg’s original argument was that cries of extreme pain are an admission that they are overpaid. How does one logically follow from the other? His justification was that people don’t get nearly so upset when they lose a job near the market clearing wage? Where is the evidence for this statement?

  53. 53 53 Daniel

    In other words if the market clearing wage = monthly costs to survive of employee, but the overpayment wage = monthly cost to survive of employee + $500, who do you think will get more upset or experience more pain when they are laid off, in their search for employment?

  54. 54 54 nobody.really

    Any argument that says the shutdown is bad because it eliminates (or, more accurately, postpones) the transfer of income has to explain why this particular transfer is especially desirable. I think it’s wildly implausible that you could construct a non-ludicrous version of such an argument.

    1. I agree with Landsburg’s main point: We should evaluate policies holistically. The fact that a former employee is harmed by the loss of income is not, by itself, much of an argument for continuing to pay that income. The same argument applies to 800K employees.

    Various people make a Keynesian argument for stimulus. But even if you embrace the Keynesian argument (and I suspect Landsburg doesn’t), Landsburg appropriately responds that we have not demonstrated that providing salaries to these 800K employees is the optimal way to provide such stimulus.

    2. Possible non-ludicrous rationale 1: Expediency. Recall that the US tried to stimulate the Afghani and Iraqi economies by shipping in dollars on pallets. Would some of the money be used sub-optimally? Well, duh. But we placed a premium on haste; we feared that the places would collapse at any moment unless we could build stability. Those fears proved to be well-grounded, even if our strategies for building stability were not.

    Depending on your predictions about the US economy, distributing funds to 800K civil servants throughout the US might be a better form of stimulus than many you might consider, if only because we know how to implement that policy promptly.

    3. Possible non-ludicrous rationale 2: Stability. Why does the legislature require employers to provide unemployment insurance? And why do governments extend unemployment insurance during economic slumps – rather than, say, simply pouring more funds into a means-tested social safety net?

    Unemployment insurance has various advantages. By providing greater assurance of continuing cash flow, unemployment insurance helps people make long-term investments (e.g., buy homes). And it targets funds to people who are predictably short on funds. No, this policy will probably not get funds into the hands of the most needy; the neediest people haven’t had jobs for quite a while. But the policy promotes stability.

    Seeking the re-employment of civil servants achieves similar objectives.

    4. Finally, Landsburg’s parenthetical expression – “Any argument that the shutdown is bad because it eliminates (or, more accurately, postpones) the transfer of income…” — kinda gives away the game.

    It may be challenging to argue why transferring money to these 800K people leads to better outcomes than other things you might do with the money. But now Congress had declared that these 800K people are gonna get the money anyway. So now we get to compare 1) paying 800K people promptly and getting public services, to 2) sacrificing those public services, but paying people late and gaining the time value of the delayed salaries — at a time when government borrowing is almost free.

    So here’s the “How Libertarian are You?” test: Are you seriously arguing that we’re better off paying civil servants NOT to work than paying them to work?

  55. 55 55 Daniel

    @ RJ 51,

    “But we don’t have a homogenous good being sold in two different markets.

    Then how exactly are we having this argument?”

    We’re not, because to figure out if Federal workers are overpaid, we’d need to find an area where the private sector and public sector provide the same homogenous good.

    “Then all the more reason not to pay them so well above the fair market wage.”

    In order to figure out whether they’re being overpaid, we need to know the marginal benefit to society of their employment, so I’m not seeing how we can calculate the fair market wage?

  56. 56 56 Frosty

    @iceman 50

    Steve initially stated his claim without any assumptions. Steve later added the assumption that the work is the same. You’ve now added the assumption that all else equal. Well, if you stipulate all else equal, then I accept the claim that losing more money is more painful than losing less money. However, the critiques are simply pointing out the absurdity of assuming all else is equal. Assuming all else equal is fine for, as RJ says, ivory tower exercises, but to use it in the real world to claim people must have been overpaid and are ripping off the public is audacious.

  57. 57 57 RJ

    We’re not, because to figure out if Federal workers are overpaid, we’d need to find an area where the private sector and public sector provide the same homogenous good.

    You missed the point. One doesn’t argue over overpaying if there is a significant difference in the good/service that justifies the price increase. If you’re going to make the case that federal workers aren’t overpaid, then you have the burden of proving the price increase is somehow justified. Good luck with that.

    In order to figure out whether they’re being overpaid, we need to know the marginal benefit to society of their employment…

    No you don’t, not in this case.

  58. 58 58 Daniel

    @RJ,

    “You missed the point. One doesn’t argue over overpaying if there is a significant difference in the good/service that justifies the price increase. If you’re going to make the case that federal workers aren’t overpaid, then you have the burden of proving the price increase is somehow justified. Good luck with that.”

    How does the burden fall on me to determine whether the price increase is worth the premium? I’m not sure that it is, but I’m also not sure that it isn’t because federal workers and the average worker do not perform the same tasks, therefore we can’t really determine from the information given whether the price is worth the premium. You’re the one stating that federal workers are overpaid, so why does the burden fall on me to state why they’re not.

    If we did know the marginal benefit of their employment and we also knew the average private sector marginal benefit to their employment, than we’d be able to use the information provided by you from CBO to determine whether they are being overpaid.

  59. 59 59 iceman

    Well we can start by simply assuming one group is systematically different than another, but ceteris paribus has a pretty good pedigree for instructive purposes (so much so I almost take it for granted). From there we need a plausible story (at least that’s where the burden ought to lie IMHO). This doesn’t sound like an “audacious” process to me. (BTW responding with “mean-spirited” or “ivory tower” I find to be cop-outs)

  60. 60 60 RJ

    How does the burden fall on me to determine whether the price increase is worth the premium?

    Given the nature of this argument, compensation differences between a private sector employee and a public sector employee, if the work and output is the same but the public sector worker is being compensated more, that is being overpaid. The only way you could possibly argue otherwise is to somehow justify the premium, that is why the burden of proof is on you.

    If we did know the marginal benefit of their employment and we also knew the average private sector marginal benefit to their employment, than we’d be able to use the information provided by you from CBO to determine whether they are being overpaid.

    Again, no, you don’t need that. You’re making this more complicated than it needs to be. We don’t need to run some complex regression analysis and hold a bunch of factors constant, we just need simple logic. Perhaps an example will suffice.

    Let’s use K-12 schooling. The reason for public schools is that the market doesn’t adequately supply the demand for such a service. Thus, there is a net social benefit in providing public schooling via taxes as an alternative to private schooling for those too poor to afford private schools. However, it is widely reported that public school teachers receive better compensation that private school teachers even though they provide a similar service (though actually private schools have better academic results). Thus, even though we don’t know the exact social benefit (or marginal benefit, we don’t even need to know that) we can conclude that public school teachers are overpaid given the fact that there exist those within the private sector working for less with better quality.

  61. 61 61 Daniel

    @RJ,

    “if the work and output is the same but the public sector worker is being compensated more, that is being overpaid.”

    I’m not sure that the work and the output is the same.

    “(though actually private schools have better academic results)”

    Actually there’s evidence of cream skimming in privately run schools. Other studies have shown that when controlling for socioeconomic factors, private schools do about as well as public schools. However, even after controlling for socioeconomic factors, there’s still no way to properly control for cream-skimming, since parents that pay attention to their kids enough to make selections about the school their child should enroll in, are also more likely to be attentive to their child. See why it’s not always an easy 1-1 comparison?

  62. 62 62 RJ

    I’m not sure that the work and the output is the same.

    Yes, I know, which is why you must justify why a furloughed public sector employee deserves to be paid what they’re being paid compared to their private counterpart.

    Actually there’s evidence of cream skimming in privately run schools. Other studies have shown that when controlling for socioeconomic factors, private schools do about as well as public schools.

    Fine, say they do it as well. Public school teachers are still getting overpaid compared to their private counterparts who have the same results for less pay!

    You’re still not recognizing the bigger picture. If you have a service/good, any service/good, provided by both the government and the private market in which you pay more for the government service/good, there has to be a justification for that higher price! If there exists no justification, you’re overpaying. You don’t need to calculate the marginal or social benefit.

  63. 63 63 Daniel

    @RJ,

    “Fine, say they do it as well. Public school teachers are still getting overpaid compared to their private counterparts who have the same results for less pay!”

    I’m not sure that they do it as well. If they get the least difficult kids to teach and they have about the same results as their public sector counterparts than they’re not doing as well as their public sector counterparts.

    “Yes, I know, which is why you must justify why a furloughed public sector employee deserves to be paid what they’re being paid compared to their private counterpart.”

    If they’re doing fundamentally different work, it could be that the public sector worker on average is dealing with more difficult problems. It could be the opposite. Why does the burden fall on the person not making the claim to provide evidence?

  64. 64 64 Frosty

    @Steve Landsburg 24 It seems to me that all I need is the observation that it’s more painful to lose a $50,000 job than to lose a $40,000 job, assuming the work is the same.

    Wrong. You need much more than that because your claim attempts to derive cause from effect. To claim y must have been caused by x, you need to establish that y doesn’t have other plausible causes. At the risk of piling on at this point, could the worker’s circumstances, expectations, and/or personality be causing the elevated level of expressed pain? Could the timing of the furlough be causing the elevated level of expressed pain?

    @nobody.really 54 We should evaluate policies holistically

    I agree.

    @iceman 59 …but ceteris paribus has a pretty good pedigree for instructive purposes

    I agree. However, applying it where it clearly doesn’t make any sense leads to misguided conclusions.

    so much so I almost take it for granted

    Yes, I understand. Perhaps Landsburg has made this error here.

    From there we need a plausible story

    What is the plausible story here? Isn’t it obviously implausible that all furloughed workers are equal in every respect except relative pay?

    This doesn’t sound like an “audacious” process to me.

    Again, the process can be instructive, but when applied poorly, can be audacious. Audacious = showing an impudent lack of respect. I contend claiming, without sufficient evidence, a person is overpaid and is ripping off the public reveals a due lack of respect.

  65. 65 65 RJ

    I’m not sure that they do it as well. If they get the least difficult kids to teach and they have about the same results as their public sector counterparts than they’re not doing as well as their public sector counterparts.

    Here we go, this is the kind of argument you need if you’re going to make the case that government workers aren’t overpaid.

    Why does the burden fall on the person not making the claim to provide evidence?

    I already gave you a link (and here’s another) to a study supporting my position as well as a definition and argument of what ‘overpay’ in this context means. I have defended my position but you’ve yet to really give any credence to yours that public not being overpaid. You’ve now the burden of defending your claim.

    The only person I’m aware of that defends against the idea that public employees aren’t overcompensated is Keefe. Other than him, there is more evidence on the contrary demonstrating that federal workers are overcompensated compared to their private counterparts.

  66. 66 66 RJ

    *Correction

    Keefe actually only points out that state and local government employees aren’t overpaid or overcompensated. I think I’ve loosely used the term ‘public’ in making this point. We’ve had this argument already when Dr. Landsburg wrote a post concerning the Wisconsin union worker strikes and I don’t wish to continue it.

    Federal employees according to the data seem to be overcompensated.

  67. 67 67 Mike H

    @Steve Landsburg 24 It seems to me that all I need is the observation that it’s more painful to lose a $50,000 job than to lose a $40,000 job, assuming the work is the same.

    Frosty #64 Wrong. You need much more than that because your claim attempts to derive cause from effect. To claim y must have been caused by x, you need to establish that y doesn’t have other plausible causes.

    It’s worse than that. The alleged observation that the $50k worker suffers more pain, on retrenchment, than the $40k worker just tells us the slope of the relationship between lost salary and pain. The assumption tells us nothing whatsoever about the intercept, so we can’t know whether “extreme pain” implies “overpaid”. For all we know, those suffering the most excrutiating pain might merely be slightly less underpaid than everyone else.

    And, of course your point is right on the ball – pain on job loss is not at all merely a function of lost income, even if the work done was the same.

    So Steve needs more than the assumption he stated in #24 to carry his argument through.

  68. 68 68 Harold

    “why this particular transfer is especially desirable. I think it’s wildly implausible that you could construct a non-ludicrous version of such an argument.”

    This is similar to the Coase arguments in some regards – Coase sort of threw “fairness” out of the window – at least as an economic argument. So if stopping transfers of funds to the employees causes economic problems, we may decide that making some payments would be beneficial, but there is no economic justification for making exactly the same payments to the same people when other payments to different people may have an even greater effect.

    There are however considerations other than short-term economic ones, which may not be ludicrous. The long term effects of de-stabilising the employer / employee relationship may have significant effects, as pointed out by nobody.really.

  69. 69 69 Val

    Firstly, the pain of losing a couple weeks pay (or at this point having it deferred) is /more/ when one is living paycheck to paycheck, and a whole lot of gov workers are fairly low paid GS5 to 9 or 11. But anyway

    Also, how about the contractors who a) aren’t and won’t be paid and b) have been told that if they put in for unemployment they go to the end of the rehire line?

    Or if that is still too close to depending on the government, how about all the small businesses in various cities that are taking a huge hit from not having people in the nearby offices or parks or museums? Food trucks, small restaurants, dry cleaners and the like. Research that has to start over (article in I think Wired on that)

  70. 70 70 Steve Landsburg

    Val:

    how about all the small businesses in various cities that are taking a huge hit from not having people in the nearby offices or parks or museums?

    This is beyond silly. If I give you a dollar, you will spend more, I will spend less, the businesses close to you will be happy, and the businesses close to me will be sad. Why should I care more about the businesses that happen to be located near a lot of government employees than the businesses that happen to be located near a bunch of taxpayers?

    If you want to argue that government employees provide valuable services that are not getting performed, then you can make a legitimate case against the shutdown. But if your argument is simply that it’s a good thing for Group A (in this case taxpayers) to give money to Group B (in this case govt employees), then you need to make a case that Group B is particularly deserving of charity — and I think that’s going to be a very hard case for you to make.

  71. 71 71 Daniel

    @RJ,

    Again, I reject the methodology used in both papers, since there’s no way to directly compare the types of work. Also, I’d say that assuming I go along with your argument that federal workers were overpaid from 2005-2010, this doesn’t necessarily mean that they’re still overpaid in 2013. Remember, there has been a pay freeze in affect since 2011, so that would have shrunk or eliminated their overpayment assuming one exists.

  72. 72 72 Ken B

    @Steve Landsburg 24:
    You wrote
    “all I need is the observation that it’s more painful to lose a $50,000 job than to lose a $40,000 job [ceteris paribus]”

    That’s not quite your argument I think because you don’t mention here the amount the job is overpaying. You really mean it’s more painful to lose a 40K job when you know you are only worth 30K than it is to lose a 50K job when you know you are worth 50K (or 55K etc).

  73. 73 73 RJ

    Again, I reject the methodology used in both papers, since there’s no way to directly compare the types of work.

    There exists an indirect way. Turnover rates for government employees is often less than half compared to private sector counterparts from 2003-2013 if you look at data from the B.L.S.

    Also, I’d say that assuming I go along with your argument that federal workers were overpaid from 2005-2010, this doesn’t necessarily mean that they’re still overpaid in 2013. Remember, there has been a pay freeze in affect since 2011, so that would have shrunk or eliminated their overpayment assuming one exists.

    That’s a pay freeze, it doesn’t apply to benefits. Also, there are still certain instances where the government, though it’s discouraged, can still give out bonuses.

  74. 74 74 Frosty

    @Ken B 72

    I had similar thoughts, but once Steve stipulated the work is the same, then I presume the implication is the $50,000 is overpaying by $10,000.

    It doesn’t matter much though, does it? Steve seems to start with the premise that if [overpaid] then [elevated pain]. He then concludes any observed [elevated pain] must have been caused by being [overpaid]. Regardless of whether his premise is true, I contend Steve’s reasoning is flawed and is an example of affirming the consequent. Does anyone disagree? Iceman? Steve?

  75. 75 75 iceman

    64 – With all due respect this seems kinda silly. Rather than an “error” or “poor application”, it’s pretty standard practice to begin by isolating one variable to see what you learn from that, then gradually relax assumptions – provided you have some *systematic* basis for doing so. Obviously everyone is never the same in every other way, but you still need to construct a story of specifically how they differ that gets us to a more reasonable place (but still better off for any insights gained in getting there). So the post did the former (as is SL’s wont), and commenters are trying to flesh out the latter. Seems as it should be, and I bet even those who don’t like the message hadn’t thought about the notion of “pain” much from that angle before. So I’ll repeat, not seeing anything particularly “audacious” about saying “under this set of circumstances, person X is likely overpaid”. This does not (cannot) claim to account for all other possible factors, and arguing that it requires doing so rather seems to flip deduction on its head. Again this is different from alleging some empirical relationship (the “krugmaning” comment). I get the sense some people are primarily bridling at the “ripping people off” hyperbole as indelicate (possibly because they did not presume as instinctively that we were starting in an “all else equal” world). But the point remains you need to respond with more than “but clearly all else might not be equal”. Of course. Inform us.

  76. 76 76 Frosty

    @75 iceman Inform us

    Not sure how much more informative I can be beyond the explanation and link provided in #74. Did you read it? Do you agree or disagree?

  77. 77 77 Harold

    #74 Lets look at this logically.
    An individual worker will feel more pain by the furlough if he is overpaid – lets take that as true. If overpaid, then more pain.
    However that is not what Steve said. He said “The more painful the furlough, the more overpaid the worker must have been in the first place.” That is more pain, then overpaid.

    This does seem to be a case of affirming the consequent.

    Iceman explained this by saying there was an assumed cetus paribus. In this case, we are saying the only variables are pain and overpayment, so it works both ways. Since we have seen there are a huge number of variables that affect level of pain on furlough, this seems an unreasonable assumption. I therefore agree with Frosty.

  78. 78 78 Daniel

    @RJ

    “There exists an indirect way. Turnover rates for government employees is often less than half compared to private sector counterparts from 2003-2013 if you look at data from the B.L.S.”

    Oh so now you want to say workers are overpaid because the government doesn’t act irrationally to fluctuations in the business cycle?

  79. 79 79 Harold

    Daniel and RJ. What if I were to say private sector teachers were underpaid? There seems to be an argument that this is not possible, since the lowest pay anyone will accept must be the right pay. RJ says “Other than him [Keefe], there is more evidence on the contrary demonstrating that federal workers are overcompensated compared to their private counterparts.” The evidence may be that they receive more remuneration, but that does not mean they are overpaid.

    RJ says of the “proper” wage: “It was stated in the post; it’s the fair market wage” This is a bit confusing since many would argue that the fair wage is different from the market wage.

    In a perfect market, both would be the same. The market for employment in teachers is not a perfect market, so we have no reason to expect the market to produce the fair wage – in fact, if we agree that it is not a perfect market, we can be almost certain that it will not produce a fair wage. So we cannot simply point to wage differences and conclude one sector is overpaid.

    If we use international comparisons, USA teachers get middling pay, but actually teach the longest hours. These are corrected for spending power to $US. By this comparitor they are not overpaid. http://www.edudemic.com/global-teacher-salaries/.

  80. 80 80 RJ

    Oh so now you want to say workers are overpaid because the government doesn’t act irrationally to fluctuations in the business cycle?

    Do you understand what the business cycle constitutes? The numbers I presented you are pretty much the same across the board.

    The evidence may be that they receive more remuneration, but that does not mean they are overpaid.

    Yes, actually, that’s exactly what it means unless you can somehow justify the price increase.

    This is a bit confusing since many would argue that the fair wage is different from the market wage.

    No, fair market wage is often synonymous with market wage. They’re the same thing, given the quantity of workers at the given wage total surplus is maximized.

    In a perfect market, both would be the same. The market for employment in teachers….

    Stop!

    This isn’t a debate about private vs. public teachers. I provided it as an example to explain to Daniel the logic behind my argument of what overpaying constitutes. Any further discussion on the issue is a debate for another day and a red herring to what’s being discussed. If you don’t like the example, fine; I shall continue to speak in annoying syllogisms and use alphabet letters to represent different institutions.

  81. 81 81 Ken B

    Harold in 79: “In a perfect market, [market wagfes would be fair wages]. The market for employment in teachers is not a perfect market, so we have no reason to expect the market to produce the fair wage … So we cannot simply point to wage differences and conclude one sector is overpaid.”

    Actually we can. Entry into the market for teaching is artificially restricted. This is easily demonstrated. So the wages in that market will be higher than in a perfect market. It’s the same reason why the fares for airport taxi rides are unfairly high.

  82. 82 82 Daniel

    @ RJ,

    Actually the link you provided me with was an error message because of the shutdown.

  83. 83 83 Daniel

    @Ken B,

    “Actually we can. Entry into the market for teaching is artificially restricted. This is easily demonstrated. So the wages in that market will be higher than in a perfect market. It’s the same reason why the fares for airport taxi rides are unfairly high.”

    I think the case for teacher licensure is a little different than the case for taxi licensure. There are certain things we want to make sure teachers possess before we let them teach our kids, like how not to be psychologically abusive to children, etc. So in this case we could be paying the right amount for competent teachers even though the market is restricted by licensure.

  84. 84 84 Harold

    #80 and 81. “I provided it as an example to explain to Daniel the logic behind my argument of what overpaying constitutes.” yes, but this example seems to fail to do that. I can compare to other countries, and conclude underpayment. You cannot just say that because one number is bigger than another it is too big, the other may be too small.

    Ken B: This is more like it – a justification for how we might know the higher pay is overpay, but it still falls short. It does describe an upward pressure on wages, but it does not preclude other downward pressures. It also hinges on “artificially” restricted – it is possible that the restrictions get us closer to the ideal situation. As Daniel points out, there are some restrictions we would like, and we may not be able to achieve these using only market forces.

  85. 85 85 iceman

    Frosty – sorry I hadn’t seen 74, but I meant “inform us” empirically about why it might be more reasonable in this case to assume there are systematic deviations from ceteris paribus.

    Frosty & Harold – I think the difference is whether an “assumption” serves as a starting point for deduction. I agree if you interpret the message as “I conclude the only possible explanation for feeling extreme pain…”, that’s not reasonable. But then you’re simply choosing not to play the game I’ll call “landsburging”: question a hidden premise by probing an underlying relationship that gets glossed over, and follow the logic to surprising conclusions that are never expected to be literally, universally true, but yield new insight or perspective. (Yes for extra fun you can heighten the ‘surprise’ with a little rhetorical flourish for dramatic contrast.) After introducing other complicating factors, you may end up deciding the conventional wisdom was right but not necessarily for the basic reasons you thought. Other times you may find a premise warrants serious re-thinking.

    The opposite game is what some here have called “krugmaning”: alleging a relationship while glossing over the deductive steps, sometimes via vague references to basic principles that can merely entrench confused conventional wisdom. Given the choice, I find this version less enlightening and transparent. But then again I find it pretty obvious that all else is not always equal.
    Ironically I thought Krugman used to be great at debunking “krugmaning” arguments in favor of strategic trade.

  86. 86 86 RJ

    yes, but this example seems to fail to do that. I can compare to other countries, and conclude underpayment. You cannot just say that because one number is bigger than another it is too big, the other may be too small.

    That’s not what I’m saying, you’re either not reading/understanding my other comments or you’re deciding to straw-man them.

    If there are two hamburger vendors near my place, both serving equal products in terms of quality, but one charges $2.00 instead of the $1.00 that the other vendor serves, if I buy the $2.00 one I overpay. Now, it’s different if the $2.00 tastes better, is more sanitary, etc. but in such a situation you have a justification for the price increase, you’re getting something out of it. When you overpay, you get nothing extra. Similarly, this applies to wages given to workers because wages are just another price.

    And yes, you cannot *just* do cross-country comparisons (assuming the law of one price isn’t in effect) because you have to consider the different equilibrium conditions given. Government worker A in country B may be paid less than in country C, however demand in country C for worker A may be higher and thus have a justification for such an increase in pay.

  87. 87 87 RJ

    And as I’ve said before, and as Dr. Landsburg has pointed out multiple times this week, if you’re a government worker being paid more than the market rate, society in general loses out. It’s akin to setting a price floor, you accumulate deadweight loss. Dollars spent on the federal worker could’ve been dollars taxpayers saved or spent elsewhere.

  88. 88 88 Daniel

    @RJ,

    What the market rate for government workers? So far you’ve shown us various evidence that federal workers are paid more and have more job security, so you’ve gotten at the question of price. However you’ve failed to produce evidence that those workers are not of greater or different qualitatively on average than private sector workers. I’ve been largely agnostic, by simply pointing out that your studies could not control for all the quality variables that you would need to make a comparison. So, I’m still really unsure of how you can automatically come to the conclusion that they’re overpaid.

  89. 89 89 RJ

    What the market rate for government workers?

    It depends, there’s different types of jobs. Google whichever one your heart desires.

    However you’ve failed to produce evidence that those workers are not of greater or different qualitatively on average than private sector workers.

    Yes I have, I gave you B.L.S data. The link information didn’t stick, but you can still find the information you need if you dig around a little (it wasn’t due to the shutdown). It’s the job opening and labor turnover survey (JOLTS).

  90. 90 90 Frosty

    @iceman #85

    With all due respect, you seem to be avoiding the question. Is Steve’s reasoning flawed by affirming the consequent or isn’t it?

  91. 91 91 Daniel

    @RJ,

    How is turnover an indication of quality? You’re mixing up so many different things and trying to make generalizations. Maybe the turnover rate is lower because public sector employees are more loyal than private sector employees. Maybe public sector employees are of greater quality on average and thus their employers are less likely to let them go. How are you trying to say that public sector employees are of lower quality because they have lower turnover rates?

  92. 92 92 RJ

    How is turnover an indication of quality?

    Simple, if the turnover rate is incredibly low, it’s a good indicator that federal jobs on the average are too pampered. Someone who is paid at market rate and has his pay/hours cut will seek out another job (or just to find a better job) with greater frequency.

    Similarly, the lower turnover rates are indicators of several other things. One is management is poor in monitoring and evaluating productivity of employees and weeding out all the lackluster performers.

    You’re mixing up so many different things and trying to make generalizations.

    When you don’t have a direct method of measuring something you find an indirect method of measurement. That’s what social scientists do, and last I checked economics is a social science. Doubly so for government workers since the actual direct method used by the B.L.S was abandoned in the 1990′s. (I guarantee this isn’t due to difficulty in acquiring stats).

    I don’t need to directly observe a bear and risk being eaten in order to conclude a bear is in the area if I see paw tracks.

    Maybe the turnover rate is lower because public sector employees are more loyal than private sector employees.

    Special pleading. If you were a lawyer, you would basically be arguing “We can’t conclude my client stabbed the victim just because he was holding the bloodied knife and was nearby the body. Maybe the real murderer came up, said ‘Hold this!’, and then ran away.”

  93. 93 93 Daniel

    @RJ,

    The reason I say you’re making generalization about turnover is because there are lot’s of different models that describe the reasons for turnover, here’s just one:
    http://en.wikipedia.org/wiki/Turnover_%28employment%29#Models

    Let me give you a hint, the only variable in the model isn’t pamperdness. In economics we generally try to stick to models to describe the world and don’t infer reverse causation to a single variable when all we have are the outcome variables. Thus the reason I postulated other causes that could be affecting the turnover rate. It just so happens that they’re in the model I just linked you to.

    Your evidence is extremely circumstantial:

    “We can conclude that your client was the murderer because the victim ended up dead, and your client has no alibi for the night?”

  94. 94 94 Daniel

    Sorry, linked to the wrong page:
    http://en.wikipedia.org/wiki/Job_embeddedness

  95. 95 95 RJ

    Daniel,

    First off, my guess is you’ve never read any of those research papers. If you did, then why not link them from the get go? Referencing wikipedia is incredibly weak.

    Second, the first link you gave gives credence to my position concerning the low turnover rate under section “Causes of high or low turnover.” The fact that government, by itself, the turnover rate is less than half of the private sector evidences that there’s overcompensation. Why else is there so much job embeddedness? What makes it so enticing? If government workers are so loyal, then they wouldn’t mind if we too away all those extra benefits that are above the market rate, but they typically scream bloody murder when this occurs.

    In economics we generally try to stick to models to describe the world and don’t infer reverse causation to a single variable when all we have are the outcome variables.

    So you’ve never heard of econometrics? When you see a phenomena, you try to explain it by developing a hypothesis to what’s causing it at test said hypothesis. Yes, you have to be aware that correlation doesn’t imply causation.

    Thus the reason I postulated other causes that could be affecting the turnover rate.

    Yes, *postulate* without giving and evidence to your skepticism, which is leading me to believe you’re just arguing just to argue.

  96. 96 96 RJ

    Your evidence is extremely circumstantial:

    So is DNA evidence at the murder scene.

  97. 97 97 Daniel

    @RJ,

    I’ve been really busy lately but I generally find wikipedia to be a pretty good starting source. Anyway, I agree that we should test models, but I’d just point out that you haven’t produced any econometric evidence either, you still just have an outcome and are inferring backwards to pampering, without considering that other factors could be the culprit.

  98. 98 98 Daniel

    @RJ,

    Let’s take google for example. I bet they have a low labor turnover rate. Do you think they overpaid?

  99. 99 99 RJ

    I’m open to other considerations but you haven’t given any other rational other than loyalty (which was rather weak) or provided evidence supporting the possible alternatives. To be blunt, what we can gather as evidence seems to be against you. I’ve given two means of demonstrating that it’s possibly the case that government employees are overpaid, high compensation and low JOLTS score.

    Let’s take google for example. I bet they have a low labor turnover rate. Do you think they overpaid?

    Google has one of the highest employee turnover rates. Might want to check your speculations first…

  100. 100 100 Daniel

    Okay your right, I didn’t have time to check the google fact. Why do things default to your assumptions? Why is pampering the default and loyalty a weak assumption. To me it just seems like it’s because you know in your gut that it’s pampering and not loyalty without having evidence.

  101. 101 101 RJ

    Busy too, need time…

  102. 102 102 Harold

    #86 RJ. I think I have not missed your point, and not made your arguments straw men. Your example illustrates this quite well. If I have two hamburger stalls, one selling at $1 and one at $2 for equal quality, you conclude that $2 is overcharging. However, you cannot conclude this from the price information alone. What if the $1 burger stall goes bust later because he was not charging enough? It would have turned out that he was undercharging, and $2 was the correct price. You need more information that the price alone to say which is the correct price.

    You say the same with turnover rates. Unless you know what the “correct” turnover rate is you cannot say that one rate is too high and one too low just by comparing the two.

  103. 103 103 RJ

    I only have a quick reply for the moment…

    Harold,

    I economics, we assume rational actors both on the consumer and producer side. Price is, ceteris paribus, equal to demand, average revenue, and marginal revenue, thus in order to maximize profits producers will set their marginal cost equal to their marginal revenue. They are price takers not price makers. Thus, producers will not price below MR=MC because they know they will lose out.

    You say the same with turnover rates. Unless you know what the “correct” turnover rate is you cannot say that one rate is too high and one too low just by comparing the two.

    Then according to you if I were a doctor and measuring blood pressure rates of the entire populace, I couldn’t take the average, look at ones that were significantly above this average, and assume there’s an abnormality.

    When you have federal worker quit rates at less than half that of their entire private counterparts, there’s something going on. Juxtapose this with their higher pay and/or benefits than their private counterparts, you have reasonable evidence for overcompensation. I don’t see either you or Daniel giving sufficient reasoning for another possible alternative; what you’re both doing is playing the skeptic, however this is not really productive skepticism but skepticism that borders Cartesian and thus might as well just say the numbers and evidence I presented you were some sort of grand conspiracy by an evil genius planted to confuse the three of us simultaneously.

  104. 104 104 Harold

    “In economics, we assume rational actors both on the consumer and producer side.” Indeed, we assume such, and if such assumptions were valid, then so would be the conclusions. Lets extend this to your doctor:

    “if I were a doctor and measuring blood pressure rates” Since we are talking about behaviours rather than physiology, a fairer comparison would be measuring say salt consumption. Can we take the average and assume that anyone consuming significanlty less is consuming too little?

  105. 105 105 RJ

    Can we take the average and assume that anyone consuming significanlty less is consuming too little?

    If I find significantly higher blood pressure rates in one or a particular set of individuals against the populace, and find out the only difference is due to higher levels of salt intake, it’s reasonable to conclude that this may be the cause.

    As such, I see lower turnover rates for federal workers and higher compensation. It’s fair to conclude turnover rates are lower because they’re overpaid.

  106. 106 106 iceman

    Frosty (90) et al – I tried to answer – basically I think you’re trying too hard to paint this as all-or-nothing for a “gotcha”. It’s obvious that being overpaid isn’t the *only possible* cause of pain, but an interesting association that probably contains a good deal of truth (but can’t possibly purport to account for every possible extenuating factor). You seem primarily offended by the use of the word “must”, but I would think anyone who’s followed this blog (or any other frankly?) shouldn’t be too surprised at the taking of a little poetic license. How else can one get a dramatic punchline like “actually an argument to *prolong* the shutdown”? C’mon, even economists are allowed to have a little fun.

  107. 107 107 Harold

    Harold: “Can we take the average and assume that anyone consuming significanlty less is consuming too little?”

    RJ: “If I find significantly higher blood pressure rates in one or a particular set of individuals against the populace, and find out the only difference is due to higher levels of salt intake, it’s reasonable to conclude that this may be the cause.”

    I am not sure this makes sense. Are you saying it *is* reasonable to conclude that those that consume less salt that the average are consuming too little?

    If you meant that it is reasonable to assume the opposite – that those consuming more salt were consuming too much, then this is only because you believe higher blood pressure is bad. Without such external information (which you don’t have for turnover rates) you would have to conclude that high blood pressure was good if it was linked with average salt intake.

  108. 108 108 Harold

    Just had a thought. There are really two different questions 1) Are we overpaying these people as teachers, and 2) do we over/under pay the teaching profession.

    In 1) we are looking at the employment market for the individual teachers, in 2) we are looking at the market for education. It is a different question whether we are paying these people what they are worth from whether we should pay teachers differently to attract different people.

  109. 109 109 Frosty

    @iceman 106

    Fair enough. If you’re saying readers shouldn’t take Landsburg seriously, then we’ve landed on common ground.

    an interesting association that probably contains a good deal of truth

    I don’t think it contains a good deal of truth. As others have pointed out, the opposite argument seems as likely to be true.

    C’mon, even economists are allowed to have a little fun

    What could be wrong with having a little fun at the expense of furloughed workers?

  110. 110 110 RJ

    Harold,

    I’m cutting you off. There’s honestly no point in continuing this discussion with you.

  111. 111 111 iceman

    109 – I think you could take more seriously the idea that there can be truth in both arguments. “The opposite seems as likely to be true” sounds like the basis for an interesting discussion to me (or are you saying neither contains a good deal of truth?). In fact we basically started with a logical truism (more overpaid = more pain…dare I say, all else equal?), which evoked a litany of mitigating reasons why the “consequent” may not always follow. And everyone seems to agree the focus should be on lost productivity not wages.

  112. 112 112 Frosty

    @111 iceman there can be truth in both arguments

    We’ve again landed on common ground! Your latest description is your most accurate; the worker could be overpaid. I disagreed when Steve said “must have been overpaid”, and in #75, when you said “is likely overpaid”, and in #106, when you said “probably contains a good deal of truth”. Neither Steve nor you has presented any information supporting the likelihood of pain being caused by being overpaid.

    I think we’re done, but feel free to have the last word.

  113. 113 113 Frosty

    @iceman 111 continued. I realized I neglected to respond to The opposite seems as likely to be true” sounds like the basis for an interesting discussion to me (or are you saying neither contains a good deal of truth?).

    The opposing argument others have made is: more overpaid means more resources to prepare for a furlough and therefore less pain. I’m saying this argument is as logical as being overpaid causing more pain. Again, we need more information to decide which might be more likely.

    In my humble opinion, the level of pain is most likely a function of preparedness for an income disruption. However, I think preparedness is most likely a function of personality, as opposed to relative pay. Where does that leave us? Most pain caused by being overpaid and unprepared? I don’t know.

    Again, please have the last word.

  114. 114 114 iceman

    Well if you insist:

    112 – I think we are done. As I suspected this probably all comes down to the word “must”. There’s usually some truth to conventional wisdom, but often hidden premises that are worth exposing too. This game is more fun when accompanied by provocatively stark counter-examples. I can see why people thought there was an overreach here.

    113 – Here I would just note if the argument is really about greater resources, it seems you’re equating “overpaid” with “paid more”, i.e. doing your own little ceteris paribus. This also seems like a very ST argument – surely it’s more more painful overall to lose a permanent source of above-market earnings. (Of course none of this applies to furloughs really.)

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