Here’s some advice to my friends and colleagues who work for Minnesota state and local governments: When it comes to wages, market conditions trump appeals to justice nearly every time.
As the state looks to close a huge projected budget deficit, Minnesota government employees facing a wage freeze — and any other workers outraged about the unfairness of their compensation — need to look at their earnings in the light of the broader economy.
If the pay for your job is lower than what people are getting elsewhere for doing the same thing, and you are pretty sure that you could move to such higher pay at another employer, then press for higher wages or oppose a wage freeze.
If you are pretty sure you can’t make such a move and if there are lots of unemployed people who could do your job, silence right now might be the best alternative.
(For disclosure purposes: I said “colleagues” at the outset because I have taught a course or two for Metropolitan State University each year since 1990 and am thus a public employee.)
Setting pay for public employees always involves politics — and, ultimately, voters — even if the Legislature or some local board makes the immediate pay decision.
We are not in a depression right now, but the unemployment rate is higher than two years ago. Lots of households have financial concerns they didn’t have in 1999. Raucous public demonstrations about the unfairness of a public sector pay freeze may make good TV, but will also alienate lots of voters. Do it at your own risk.
All that being said, let me acknowledge that both public- and private-sector pay-setting can stray pretty far from the smooth operation of competitive free markets as taught in introductory econ courses. Furthermore, while most people feel that they have been underpaid at some time in their career, those of us who are honest also can point to times we were overpaid.
I moved back to St. Paul in 1986 to accept a job as a research fellow at the University of Minnesota. The professor who offered me the job was extremely apologetic that he could only offer $25,000 per year because the funds came from a small grant. If the grant were renewed, he promised, he could increase my salary to $34,000 the next year.
I grimaced and said that I really would have to pull in my belt, but that I would reluctantly accept the position hoping that the second-year raise would come through. I didn’t tell him that I was only making $21,000 at the small Christian college teaching job I would resign to take his.
The project was very successful and in a few years I was up to $42,500. I stayed at that level for two years when the university imposed a salary freeze. But that freeze came off just in time for me to get a $2,000-per-year increase to list on my salary history when I moved to the Minneapolis Fed. I was in the mid-$50,000 range when I left the Fed in 1999.
Now, as a free-lance writer paid by the column, and someone who has a half-time position at a small college, I am back under $40,000, though I am enjoying my work more than at any time in the past 25 years.
Am I underpaid now or was I overpaid at the Fed?
Economic theory argues that what the market is willing to pay me reflects the value of my work to society. If I earned $56,000 per year compiling the Minneapolis Fed Beige Book and quarterly survey of ag credit conditions and got $15,150 for writing 101 columns in 2002, then my work at the Fed in 1998 benefited society 3.7 times as much as the 2002 columns, inflation aside.
I’m not sure that is true, but as an economist I have to at least consider that I probably was overpaid at the Fed. The fact that no one else is hammering at my door offering me a full-time job at the New York Times or Edgerton Enterprise is pretty clear evidence that I am getting “market clearing” pay for my punditry. On the other hand, the fact that my replacement at the Fed got higher pay with less economic and writing experience tells me that I was not severely overpaid at 90 Hennepin Ave.
Other explanations may apply. One is the factor of non-monetary compensation and working conditions. I am sitting in my home in flannel pajamas typing this at 9:15 on a cold morning while my friends back at the Fed got in their icy cars two hours ago. And I get to write about whatever I choose every week. That is more fun than reporting on economic conditions in the Minneapolis District for the 49th time.
Lesson: There is much more to fairness in a job and its compensation than the overt money involved.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.