The Invisible Hand

The Invisible Hand

For years I read about the bloated public sector, without often encountering any effective measures for curbing it. Finally a handful of states and municipalities are doing the unthinkable: cutting their budgets. The response is a general rush for the door:

California is one of many states seeing double-digit increases in retirement applications from public employees like Essex. States across the U.S. are grappling with budget deficits totaling more than $540 billion since 2009, according to the Center on Budget and Policy Priorities, and many legislatures have passed or are considering bills that would cut the pay of public workers, raise the amount they contribute to their benefits, or require furloughs. . . .

Because of the recession, many workers postponed retirement in 2008 and 2009. That and demographics explain some of the recent increase in retirements. Politics is also a factor, as budget-tightening officials take on the unions they say are driving up costs. New Jersey Governor Chris Christie has likened his state's teachers union to "political thugs." Retirements there jumped 60 percent between 2009 and 2010. In Wisconsin, where Governor Scott Walker has signed a law limiting collective-bargaining rights, retirements are up 79 percent in the first quarter of 2011 over the same period last year. . . .

Impending pay and benefit cuts prompt others to quit. Florida Governor Rick Scott has proposed that workers pay 5 percent of their salaries to help cover pension contributions and health-insurance premiums as the state tries to trim a $3.8 billion deficit this year. Florida's retirement numbers are already 23 percent higher in the first seven months of the 2011 fiscal year than in all of 2010. Texas legislators may require state employees to pay for 10 percent of their health-insurance premiums, and the state expects retirements to climb 54 percent this fiscal year over last. . . .

The bottom line: Many states are seeing double-digit increases in retirement applications as legislators trim pay and benefits.

I see this as a good thing: people responding appropriately to price signals that reflect reality. The state workers' skills aren't being lost to society, only to the public sector. The ones who are doing work that their neighbors value will find work in the private sector. That way, the people who want the skills will be the ones who pay for them at a market rate, instead of passing their cost onto others. Nurses can be expected to fare better than bureaucrats. In the meantime, the public sector can get back to hiring only as many workers as the citizens are willing to support with taxes.