Friday, July 23, 2010

Creating or saving public sector jobs

Veronique de Rugy points to an interesting study about the effects of stimulating government employment. President Obama and Joe Biden like to tout the jobs that they have supposedly created or saved. Of course, they don't want to mention the jobs that have been lost. However, just looking at the jobs created by the Democrats' stimulus, those are public sector jobs.
As you may recall, since the adoption of the Recovery Act, the private sector has shed 2.5 million jobs and the federal government gained 416,000 jobs. Also, based on the Recovery.gov data, we see that four out of every five jobs created or saved (all the data available here) were in the public sector.
Should we care? After all, a job's a job. But public sector jobs crowd out private sector jobs.
In this paper, published in Economic Policy Journal, economists Yann Algan, Pierre Cahuc, and Andre Zylberberg looked at the impact of public employment on overall labor-market performance. The authors use data for a sample of OECD countries from 1960 to 2000, and they find that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased overall labor-market participation slightly, and increased by about 33 the number of unemployed workers.

Their explanation is that public employment crowds out private employment and increases overall unemployment by offering comparatively attractive working conditions. Basically, public jobs that offer higher wages, require low effort, and offer attractive fringe benefits attract many workers and crowd out private jobs. This is especially true when the public jobs exist in the private sector (transportation and education, for instance). The impact is bigger when these new employees are paid with new taxes.

The bottom line is that it is possible that, by increasing public employment, the stimulus money is further hurting private jobs.
That's not even getting into the effect on the economy of taxes to pay for all those government jobs. Perhaps, the connection between the millions of jobs lost in the private sector and the hundreds of thousands of public sector jobs are no coincidence.

26 comments:

Tacitus Voltaire said...

But public sector jobs crowd out private sector jobs

The jobs of public school teachers and military personnel are public sector jobs

tfhr said...

You see TV, when you say something that is factually correct, nobody shoots you down. Public school teachers and military personnel ARE public sector jobs. You get a cookie!

It may be for the best that you limited your comment to a simple statement of fact. I'd say it's a refreshing change but you kind of left us hanging. Did you have a point to make after that? Maybe you wanted to refute this:

"The authors use data for a sample of OECD countries from 1960 to 2000, and they find that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased overall labor-market participation slightly, and increased by about 33 the number of unemployed workers."

And this:

"The impact is bigger when these new employees are paid with new taxes."

The government taking money out of one person's pocket and putting it into another isn't going to get the economy rolling again.

Tacitus Voltaire said...

geez, tfhr, if you refuse to learn anything about economics, you'll continue to be a victim of simplistic propoganda. here is the actual abstract, with the relevant part that Betsy's source failed to, um, shall we say, "notice":

Abstract
We explore the consequences of public employment for labour market performance. Theory suggests that public employment may not only crowd out private employment, but also increase overall unemployment if, by offering attractive working conditions, it draws additional individuals into the labour force. Empirical evidence from a sample of OECD countries in the 1960-2000 period suggests that, on average, creation of 100 public jobs may have eliminated about 150 private sector jobs, slightly decreased labour market participation, and increased by about 33 the number of unemployed workers. Theoretical considerations and empirical evidence, however, suggest that the crowding out effect of public jobs on private jobs is only significant in countries where public production is highly substitutable to private activities and the public sector offers more attractive wages and/or other benefits than the private labour market.


http://www.jstor.org/pss/1344671?cookieSet=1

if people get offered more money by government than they can get in the private sector, they'll take the government job. Duh!

and to think how easy it was to get you to fall for the version with the money sentence left out! thinking for yourself fail!

don't be so gullible - take the advice i gave you and go out and double check things for yourself instead of swallowing half truths a lies

Tacitus Voltaire said...

Their explanation is that public employment crowds out private employment and increases overall unemployment by offering comparatively attractive working conditions. Basically, public jobs that offer higher wages, require low effort, and offer attractive fringe benefits attract many workers and crowd out private jobs.

oh, my bad! i didn't see how the conclusions had been regurgitated here

still, if public jobs "offer higher wages, require low effort, and offer attractive fringe benefits" - uh what's your point?

if getting the highest return for your effort isn't the way the free enterprise system works - what is?

tfhr said...

TV,

You're sounding manic. Are you having this debate with yourself?

To answer your question(s), the tax burden created by an expansion of public sector jobs reduces the amount of money available to taxpayers that could have otherwise been used to invest in businesses, to buy goods and services, etc.

Anyway, thanks for the laugh provided by your awkward discovery that Betsy had, in fact, provided the very explanation that you, at first, concluded to be absent. How's the view from way up there on that petard? (Don't answer until you take your own advice and "double check things for yourself")

Tacitus Voltaire said...

the tax burden created by an expansion of public sector jobs reduces the amount of money available to taxpayers that could have otherwise been used to invest in businesses, to buy goods and services, etc.

my, my an actual theory!

now, let's think about this: you are worried about the money available for investing in business and buying goods and services. this theory proposes that creating "public jobs", like the one that Betsy has and the one that you spent 20 years at, 1) increases the tax burden, and 2) makes less money available for investing and spending.

yet, the people who are hired by the government are just as able to spend their money on investments and goods as those working in the private sector. in addition, the government can and does borrow billions of dollars every year, much of it from abroad, that we somehow never pay down the capital on. this money is paid out to government employees, who spend it in the american economy. not to mention, but public employees are also in the class of "taxpayers" that you mention

now, please explain to me why you think that people working in public sector jobs are not just as able to make investments and buy goods as any other taxpayer.

is Betsy, and were you when you were working for the government, and are you now, as somebody who is taking a federal pension paycheck, somehow not able to spend or invest?

Tacitus Voltaire said...

p.s.:

and they find that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased overall labor-market participation slightly, and increased by about 33 the number of unemployed workers.

this is stated, but if you want to find out what they used for "proof" of this bald assertion, you need to register. merely asserting something, or ever manipulating statistics, doesn't necessarily prove anything

yet here at Betsy's site we have only the assertion, without even the hint of how the authors think they have proven anything.

tfhr has helpfully provided us, above, with about half a thought that doesn't bear the merest inspection as a theory.

if you just swallow assertions that suit your prejudices, without even asking for the facts or logic behind it - what the heck good is it?

now, somebody look into the article and let us know what the "proof" is, eh?

Tacitus Voltaire said...

The government taking money out of one person's pocket and putting it into another isn't going to get the economy rolling again.

a few quick facts:

the stimulus bill put billions of dollars into the american economy by borrowing it from abroad

normally, taxes do not remove money from the economy - an utterly braindead idea - but move it around, like you think the stimulus bill did. it's a valid argument to debate whether the government is helping or hurting by where it moves the money from and to - mostly from taxpayer's pockets into military hardware, healthcare, and the pockets of pensioners like tfhr - but it should be obvious to anybody with a functioning brain that taxes do not take money out of the economy. actually, since the u.s gov't borrows billions of dollars every year from abroad, that it never seems to pay back, government expenditures actually add billions of dollars to the economy every year

additionally, and more understandably, people like tfhr probably think of money in terms of solids, when economists know that money is better thought of, metaphorically, as a liquid. that is, money doesn't help the economy unless it's moving around. you know that, right? but think - the same "dollar" - an abstraction, really, in this day and age - does many things to keep the economy going as it passes from hand to hand. that is, it should be clear that a dollar is not spent only once

so, the billions of dollars borrowed from other countries in the stimulus bill are making their way through the economy, increasing the rate of "flow" of the money "stream".

get it now?

this is exactly the same as the theory of the reagan administration's supply side economics, which is merely keynesian economics seen from a slightly different point of view

consider this your introduction to college freshman economics, and try to understand it

So Cal Jim said...

Gee....Lets just make EVERYONE a government worker. Hey, it sure worked in the USSR - no wait....

Tacitus Voltaire said...

Gee....Lets just make EVERYONE a government worker. Hey, it sure worked in the USSR - no wait....

you know, cotton-candy-for-brains, i have working in private enterprises all my life, creating commercial products, and now i have my little business where i sell my product,as well as resale licenses for it

therefore, i am an actual capitalist, in the strict sense as well as the philosophical one

and what do you do?

i'm willing to bet that you draw a government paycheck, just like Betsy and tfhr

Tacitus Voltaire said...

So Cal Jim said...

Gee....Lets just make EVERYONE a government worker. Hey, it sure worked in the USSR - no wait....


or,

if you are too slow to follow the argument, So Cal Jim, please don't make it so obvious to the rest of us

tfhr said...

TV,

Why so rude today? I'm not sure why you're in such a snit with So Cal Jim. Was his comment too close to home, or what?

I know there is nothing I can do to convince you that people spending their money on what they want is better than having the government spend it for them. It's the age old argument. Who knows what's best for you? You or the government?

The other thing you never seem to be able to comprehend is that government does not create wealth. It moves it around - as money obtained through taxation - but it creates no actual wealth on its own. If real wealth were just money, then I guess the government could just keep printing it with complete abandon.

If government produced a good or service that did not depend on taxpayer funding, then government could probably produce wealth. Until then it will levy taxes to fund whatever endeavor it chooses to engage in and hope that people like you will continue to believe that we must work for government rather than having the government work for us. Or as you pointed out, though you don't seem to realize it, we can work to pay off an ever increasing debt as the government continues to borrow money faster than we can create wealth in the private sector.

Tacitus Voltaire said...

The other thing you never seem to be able to comprehend is that government does not create wealth

so what?

who said the government is supposed to "create wealth"?

please use your brain to read this question and answer it

people like you will continue to believe that we must work for government rather than having the government work for us

yet again you put opinions in my mouth that i never said and don't agree with

please, please, please, tfhr, learn what a "straw man" fallacy is, and stop practising it

Or as you pointed out, though you don't seem to realize it, we can work to pay off an ever increasing debt as the government continues to borrow money faster than we can create wealth in the private sector.

i explained to you very carefully how i was on your side of this argument in the 1980s, but the reagan administration proved me wrong. if you don't pay attention to my answers, we can't have a debate

please go back and review my previous answers in regard to the debt - i'm getting tired of repeating myself giving you the same answers to the same questions

Tacitus Voltaire said...

we can create wealth in the private sector

"we"?

and since when has a 20+ year military professional who declares that they are now kicking back on their military pension ever "created wealth in the private sector"?

i'm the one "creating wealth in the private sector", buddy - not you

Tacitus Voltaire said...

government does not create wealth

you know, tfhr, i think you are just really unclear about what the function of a government is, and what it does. governments provide services, in our case mostly defense, management of the national pension fund, and support of our huge private health care sector through subsidies for the poor and elderly. here is a little breakdown of where most of our tax money goes, with a link to the pie chart that i got the numbers from:

social security, %19.63. all modern countries have a national pension fund. no, it is not a ponzi scheme or broke. any financing problems it is predicted to have by the late 2030s can easily be fixed by raising the level of income that can be taxed for it to over the present $106,800/yr

all of this money is spent back into the private sector, where it helps to keep millions of grocery store owners profitable, and also goes to the electric company and apartment owners, or banks that finance mortgages. it helps keep money moving through the economy and therefore "creates wealth"

defense: %18.74. most of this money is spent buying hardware from military contractors, and the rest is spent on military salaries like yours. the hardware by keeps many companies in business, therefore helping them "create wealth". when you were a soldier you spent or saved what you got in salary, therefore "creating wealth"

unemployment/welfare/other mandatory: %16.13. when you are working, you contribute to the unemployment fund. if you lose your job, your former employer has to agree to pay unemployment or else you don't get it. if you don't have unemployment money, that is so much less money that the grocer, electric company, etc, will be able to get, and therefore be able to "create wealth"

medicare and medicaid: %20.98. this money subsidizes medical care in our private hospital system and private drug manufacturers. if we stopped subsidizing medical care for who can't afford it, a massive percentage of the medical equipment manufacturers, doctors and nurses, hospitals, and drug manufacturers would be out a huge percentage of their income. medicare and medicaid go to all of these people, keeping them in jobs or in business, and therefore "creates wealth"

now, to have a balanced budget for fy 2010, we would have to have cut about a third of everything. sure, we could do that, but what would happen?

- your pension check would be cut by a third

- military contractors would have their business cut by a third

- a third of military personnel would have to be 'riffed', or everybody in the military would have to have a 1/3 pay cut

- ss recipients who have no other source of income would have to get by on one third less

- the percentage of doctors, nurses, hospitals, medical equipment manufacturers, and drug manufacturers making money from medicare and medicaid programs would see their income cut by a third

and we wouldn't have a dime more to spend because all we would have accomplished is to balance the budget for that year

all that economic activity that was created by the government "just moving money around" would grind to a halt

now - go back and add up all the numbers from all those programs that you talked about cutting a few weeks ago. add up all the numbers and tell me what percentage of the $3.552 trillion that the goverment will spend this year you will manage to cut from getting rid of them. according to the cato institute, the percentage would be about %.03. but i want to see what percentage you come up with

to summarize:

-governments provide services
-governments massively fund private businesses like military contractors and medical services
-money paid taken in taxes by the government is paid out to american citizens who spend it, causing economic activity and "creation of wealth"

i don't know how to make it any simpler for you

http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg

tfhr said...

Excuse me TV.

"We", as in Americans.

Not too many people get rich in the military based on their salaries. We have to use our money to make money, therefore I learned early to invest as much as I could and as such I have contributed to the growth of a wide variety of businesses. I'd do more but I have to pay the government those taxes it craves.

I'd love to be allowed to invest more than the current caps on IRAs and now that I'm getting a look at my very first 401K, I'd love to be allowed to invest more than $16.5K in that but since it's "pre-tax", the government thinks it has better ideas and limits my options to save and invest in my future and the future of fellow Americans.

Don't you think it would be better for everyone if we could invest more of our own earnings - to provide capital - to fuel growth - to create more jobs? Or do you really believe that the government knows best?

So Cal Jim said...

tfhr -- I'm concerned about TV's mentally health. I mean, I don't think he's lunatic ill like your average college professor of women's/ethnic/gender/etc. studies but I'm worried he may not be "all there."

Take this thread, for instance. Betsy's original posting postulates (citing sources) that Obama's policies have increased public sector jobs at the expense of private sector jobs.

TV responds by stating the wholly irrelevant fact that public teachers and the military are public sector jobs. [NOTE: Betsy never opined that there is no place for some public sector employment.]

Tfhr, you gave TV high marks for stating the obvious but you were also struck by the irrelevancy of his comment so you asked him, "Did you have a point to make after that?"

Instead of answering you coherently, TV immediately accused you of failing to learn "anything" about economics and of being a victim of simplistic propaganda. He thereupon launched into a critique of Betsy's piece, the highlights of which included his failure to notice that she accurately quoted a study and then by stating another obvious fact uncontested by Betsy - that if you pay public sector workers more than public sector workers, then you will get more public than private sector workers.

TV recognized he misread Betsy's original post and admitted his error. At this point, tfhr, you can be forgiven if you believed he was about to make a coherent point. But he merely reiterated the fact that people will gravitate away from low paying private sector jobs for well paying public sector jobs. He then displayed incredibly confused thinking by equating public sector jobs with "free enterprise." One can only conclude that TV does not understand that government jobs are not "enterprise," free or otherwise.

tfhr, you tried to steer TV in the right direction by bluntly pointing out that the crux of Betsy's piece is that it takes private enterprise jobs to CREATE the wealth WHICH MUST BE TAXED before any of those high paid government employees can be get their paychecks. The corollary point being that If you reduce the number of private sector, "free enterprise," American jobs, then you necessarily reduce the available wealth to sustain those high paying government jobs. [You would think that Europe's current financial mess would be lesson enough for TV on this score.]

So Cal Jim said...

TV then suggested (without proof) that the job statistics cited in Betsy's original post may be made up by the study's authors. He has harsh things to say about anyone who would accept unproved facts simply to satisfy a prejudice. However, have you, tfhr, ever seen anything by TV where he expresses the slightest doubt in the 3 million jobs Obama and Biden are always crowing about? Yeah, me either. Talk about pulling numbers out of thin air, for goodness sake. I wonder what kind of prejudice would make someone believe that obvious B.S.

At about this point I jumped into the fray by making a tongue-in-cheek comment about what happens when a country has too many government employees - wealth simply stops being created and the nation declines to ruin.

TV didn't refute anything in my comment. Instead he attacked me personally much as an emotionally unstable person would be expected to do.

He then completely switched gears by beating his chest and boasting his bona fides as a business owning capitalist.

TV finally dissolves into an incoherent rant where he resembles a punch drunk ex-boxer who, after hearing a random bell ring, starts throwing punches around in a furious but ineffectual attempt to strike phantoms he sees floating around him:

-----------------o0o---------------
"who said the government is supposed to "create wealth?"
-----------------o0o---------------
"please, please, please, tfhr, learn what a 'straw man' fallacy is, and stop practising [sic] it." [He's used this one before.]
------------------o0o---------------
"we can create wealth in the private sector
'we'?
and since when has a 20+ year military professional who declares that they are now kicking back on their military pension ever 'created wealth in the private sector'?
I'M THE ONE 'CREATING WEALTH IN THE PRIVATE SECTOR', BUDDY - NOT YOU" (Emphasis mine.)
-------------------o0o---------------

Pathetic. tfhr, TV may not be well.

tfhr said...

So Cal Jim,

But he added a link! (Even if it is Wikipedia, too bad he can't see how it reveals the fallacy of his argument) Now maybe he'll go back and take a look at WHY the FY 2010 budget failed. TOO MUCH GOVERNMENT SPENDING.

I agree with you So Cal Jim. His habit of accusing others of some perceived wrong and then promptly providing an example of said behavior by his own actions used to provide me with enough laughs that it was it's own caffeine for me. That worked for a while but now it's happening frequently enough to become boring.

Tacitus Voltaire said...

why So Cal Jim, thank you so much for actually taking the time to read what i wrote and attempt to understand it!

He then displayed incredibly confused thinking by equating public sector jobs with "free enterprise

no i didn't

the crux of Betsy's piece is that it takes private enterprise jobs to CREATE the wealth

uh, no it isn't

He has harsh things to say about anyone who would accept unproved facts simply to satisfy a prejudice

you might note that nobody has taken the time to read the article involved to find out how they claim to "prove" their point

So Cal Jim, I enjoyed reading your "analysis" of what i have written, but i can't seem to find your point

also, you mock me instead of answering my points. i don't mind being mocked - i mocked you, after all - but in adult circles we consider it necessary to actually address the other person's points and questions for an actual "debate" to take place

still, i appreciate your attempt to read and understand the points i was making. better luck next time!

Tacitus Voltaire said...

tfhr, i asked you a very simple and fundamental question, above, that you haven't answered yet:

please explain to me why you think that people working in public sector jobs are not just as able to make investments and buy goods as any other taxpayer.

the point of this question is this: you seem to think (excuse me if i misunderstand you) that jobs created by the government, and the companies, like for example TRW, that are mostly dependant on government contracts, don't qualify as "creating wealth"

is a company like TRW that make most of their money from government contracts (and i know more about these kinds of companies since i used to work for them) fundamentally different in regard to "creating wealth"?

if so - HOW?

if you want to convince me that "government doesn't create wealth", you'll have to explain to me why companies that depend on government contracts, and money spend by people like yourself, are different than those in the private sector

until you do so, your arguments are so much gibberish

Tacitus Voltaire said...

CREATE the wealth

i think this is a magic phrase you all keep on throwing around as if it explains everything. when i asked tfhr why, for example, the government creating the interstate highway system or inventing the internet (via DARPA) wasn't "creating wealth", he replied that by themselves they didn't create jobs or profit

so, in as far as i have been able to make out so far, "creating wealth" consists of creating jobs and profit. so, why is a job created by the government different? why are companies that only exist because of government spending different. is TRW not "creating wealth"? is the money a doctor or a hospital gets from medicare payouts different, when they spend it, from money that they from insurance companies? does it help the economy less when they pay for equipment or food than money that they get from insurance companies?

perhaps So Cal Jim and tfhr would like to take a stab at explaining what they mean by their fluffy Magic Pony phrase "creating wealth"

Tacitus Voltaire said...

the FY 2010 budget failed

explain "failed"

Tacitus Voltaire said...

government jobs are not "enterprise,"

i'm sorry to have to break this to you, So Cal Jim, but people actually on the government payroll are only a very small percentage of where our federal tax dollars go. the vast majority of it is spent on military hardware bought from private contractors, hospitals, drugs, and doctor's and nurses salaries in private enterprises, and pension payments, like the ones that tfhr lives on.

thus, taxes are mostly paid out to private enterprises and individuals not working for the government

sorry about your theory. it's based on ignorance

Tacitus Voltaire said...

well, i don't see any answers

i guess So Cal Jim and tfhr can't defend their points...

too bad...

Pat Patterson said...

Even some Democrats get mugged by reality on occasion and have to address the problems of actuality instead of ideology.

http://dailycaller.com/2010/07/30/clinton-comptroller-blasts-government-workers-accrual-of-benefits-at-expense-of-private-sector-workers/