Thread: Private pay shrinks to historic lows

Private pay shrinks to historic lows

By Dennis Cauchon, USA TODAY

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.
At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

Key shifts in income this year:

• Private wages. A record-low 41.9% of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.

•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.

The shift in incomeshows that the federal government's stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

"It's the system working as it should," Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs.

Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says.

http://www.usatoday.com/money/economy/i ... ctor_N.htm

State and Federal employee salaries MUST be brought in line with the private sector.

Actually, in my state, government salaries have been fairly stagnant for rank and file workers for the past decade. There are several types of government worker, and it is important to distinguish which ones we are talking about. In my state, the classified workers (the 'worker bees') have suffered stagnant salaries, unpaid furloughs, and staff cuts (bigger workloads on the remaining workers). The professional exempt type of state worker is growing: they get twice as much paid vacation and the sky is the limit on their salaries. Many professional exempts earn 6 figures. They are typically the 'bosses' and higher paid folks, though there is a movement afoot to make all state workers professional exempt, even at the lower levels. This would not necessarily raise their pay (there are no rules outside the classified ranking system) but would remove the procedural due process rights (grievance, etc.) that classified employees have.

I think the only reason that government pay looks so good now is that private sector pay has gone south so badly over the last decade. When the private sector was doing ok, working for the government was seen as a second-class career with stodgy rules , mediocre pay, and little advancement.