California

Don't Hate Me Because Working At the DMV Is Beautiful

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Who's paying for this lunch, Bob?

Bob Allen seems like a pleasant man. In fact, his Sacramento Bee opinion piece "State employees are an easy target" is a kind of tribute to his own amiability. The retired public administrator describes a luncheon during which friends carp about excessive public employee benefits. Allen—through the sheer magnetism of his personality and the sweet reason of his arguments—quickly sets everyone at ease, and all eventually join in admitting that we should really be thanking those who have heard "the noble call of a public service career."

In that spirit, I'd like say nothing but good things about Bob Allen. It's just that I don't know what to make of his actual arguments.

He's been doing the readings, so he's aware of, for example, the pro-union National Institute for Retirement Security's recent study "Out of Balance?" which claimed that the shocking overcompensation of public sector workers relative to private sector workers doesn't look as bad once you control for differences in education. Here's Allen's non sequitur:

In spite of the fact that government employees across the country are more than twice as likely to have a bachelor's degree than those in the private sector, their wages and salaries are 11 percent to 12 percent less than their private sector counterparts.

That NIRS study — whose findings seem less compelling when you look at subsequent data [pdf] from the Bureau of Labor Statistics—also neglects to control for differences in productivity, job security and other benefits, while also failing to account for public workers' much higher rates of unionization and more rapid deserved-or-not job promotion.

This isn't the first time a popular NIRS study got pre-empted by history. Allen cites the group's 2008 report [pdf] "A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pension Plans." This study sought to prove that defined benefit plans (in which the employer contributes to a group investment fund) are actually more lucrative for employers than defined contribution plans (in which the employee funds the retirement plan and chooses to invest from a range of mutual funds). NIRS claimed in 2008 that DB plans were at an advantage because they were better able to pool risk and were "professionally managed." The ensuing two years, and the $3 trillion taxpayers will have to pay—even under the best-case scenario—to cover public pension funds' losses at the tables, have not been kind to these claims.

Another claim in "Better Bang" is that DB plans have an investment-window advantage over DC plans:

[B]ecause DB plans, unlike the individuals in them, do not age, they are able to take advantage of the enhanced investment returns that come from a balanced portfolio throughout an individual's lifetime.

Translation: Unlike you managing your 401(k) according to whatever variant of the your-age-minus-100-should-be-your-percentage-of-risky-equities formula you prefer, a CalPERS manager can afford to take stupid risks no matter how old you are.

This is how we get a fund that, like CalPERS (the largest public employee DB fund in the nation), managed to lose between one-quarter and one-half of its portfolio in the year after "Bang" was written. CalPERS' pursuit of big, dumb risks led to such comedy sidelines as a plunge into Glengarry Glen Ross-level real estate schemes that cost the fund more than 100 percent of its investment. And even today, CalPERS management is basing its estimates on future average annual returns of 7 or 8 percent.

Finally, this:

Bell is not only extremely rare but is not by any means indicative of the 99 percent of government workers who get up each day and go to work and attempt to provide the best services possible to their respective communities.

It's true: Not all public employees are like the officials in Bell. Some are like the ones in Vernon, others like the ones in Maywood, and still more like those in countless cities around California and the country that are facing ruin due to gaping pension fund deficits.

Maybe it's all easier to believe if you've got a good lunch in your belly.

NEXT: But Still No Cash for the Star Wars Kid

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  1. their wages and salaries are 11 percent to 12 percent less than fewer then their private sector counterparts.

    FTFY. I do have a bachelor’s degree, after all.

  2. Wow, he seems to be a pretty cool dude.

    Lou
    http://www.privacy-tools.eu.tc

  3. In spite of the fact that government employees across the country are more than twice as likely to have a bachelor’s degree than those in the private sector, their wages and salaries are 11 percent to 12 percent less than their private sector counterparts.

    The private sector does not give pay raises or promotions for garnering a degree that does not improve one’s performance, particularly for crap degrees like sociology, politcal science and underwater basket weaving.

    The public sector does, encouraging government workers to gain mickey mouse credentials that have no bearing on their job.

  4. I recommend you not waste your time reading the NIRS study on how employers should provide defined-benefit over defined-contribution.

    Quick sample:

    More specifically, this study finds that ?
    ??A DB plan’s superior investment returns save 26%

    You know, because the fund managers are professionals overseen by trustees overseen by a board.

    1. You know, because the fund managers are professionals overseen by trustees overseen by a board.

      TOP men, Lois.

  5. also neglects to control for differences in productivity

    How exactly was the study supposed to measure that? We’re talkin bout govt workers here, cmon.

  6. It’s great that government employment and advancement is based on holding higher education degrees. That way, the government can pay some of its employees to tell it some of its other employees are entitled to more money.

  7. Haha found a typo.
    “Allen sites the group’s 2008 report”

  8. Defined benefit pension plans only make sense in the minds of those who believe in a static future.

    You have to assume that the world and the economy aren’t going to change in 40 years, and nobody is going to be tempted to spend the big pile of cash that’s being saved to pay for it. In FOURTY YEARS.

    Now given that most companies time horizon barely reaches five, not a damn one of them isn’t going to be tempted to dig into the pension fund when times get a little tough. And the unions and workers will go along with it. We’ll just borrow a bit from the pension fund and pay if back when we save the company/country/state/city from it’s current financial woes and everything gets back to normal. Right? Right?

    We’ll just be investing in the future of the company/country/state/county/city. Investment is good right? We’ll have PLENTY of time to pay back that money we just borrowed from the social security “trust fund”. Plenty. When the President/CEO/Mayor/Governor’s awesome plan to save the economy and build a more properous future, we’ll be able to pay back those loans. Of course we will.

  9. Maybe it’s all easier to believe if you’ve got a good lunch in your belly.

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