from May 2012, Economics
How much should one be paid to be an office secretary? How much should one be paid to be road maintenance worker? How much should one be paid to be a health inspector, bus driver, school teacher, building inspector, mental health counselor or an attorney? As with all organizations, government is no different in that a large portion of its cost structure is found in employee compensation. To reduce expenses often means reducing head count. A department can delay capital expenses for a year or two, but it is unrealistic to ever imagine delaying employee compensation.
In the free market, the answer to the questions above are quickly found by the laws of supply and demand. Suppose I own a coffee shop. How much should I pay my employees to make espressos for customers? I would quickly figure this out by posting my job description with a wage and benefits package. If the compensation is too low, no one will apply or those who do are likely to be less skilled than I may need. If the compensation is too high then I will have more than enough qualified applicants to chose from but it will destroy my ability to make a profit and pay myself. Over time I will find the right balance between compensation and the skill set required to serve my coffee customers well and still make a profit.
In contrast, these market forces are completely absent from pubic union employee compensation. Public unions have "negotiated" with the government what each job is worth based on the previous negotiation — plus more. Built into the public union contract is better pay for those who have worked longer in the union. Also built into the contract is a very difficult process for dismissing a public union employee unless they commit an egregious act. So when comparing which system best reflects reality, the free market wins hands down. It pays employees what they are worth based on their skill and based on the supply and demand of the surrounding marketplace. On the other hand public employee compensation is based on tables, charts and lawyers that have no idea (and no care) what a particular job should cost.