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Gary Shilling: Higher Government Pay Will "Likely Lead to a Tax Revolt"

Posted Feb 09, 2010 02:41pm EST by Peter Gorenstein in Investing, Recession, Politics
Related: spy, dia, ^dji, ^gspc, qqqq, udn, uup

14.8 million Americans are currently out of work and looking for a job, according to a report released today by the Bureaus of Labor Statistics. Even if you do have a job, wages have not increased substantially over the last ten years, with one exception: government workers.

Thanks to generous health-care benefits and pensions, it pays - more than ever - to work in the public sector. Economist Gary Shilling fears dubious consequences if state and local workers continue to make more money and at the same time governments raise taxes and cut services. 

"In good times, nobody really cares that much but now we’re not in good times," says the President of A. Gary Shilling & Co. "The basic problem is pay differential, as I see it, and that I think is likely to lead to a taxpayer revolt."

Shilling's point about pay is illustrated well in this recent research by Dr. Mark J. Perry, professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

According to a December report from the BLS, state and local government employers spent an average of $39.83 per hour worked ($26.24 for wages and $13.60 for benefits) for total employee compensation in September 2009. Total employer compensation costs for private industry workers averaged $27.49 per hour ($19.45 for wages and $8.05 for benefits). In other words, government employees make 45% more on average than private sector employees.

According to another BLS report, compensation for private industry workers has increased by 6.9% between December 2006 and December 2009, compared to a 9.8% increase for government workers (state and local) over the same period.

If that's not enough, the trend will lead to a lowering of our standard of living, even for the highest paid workers on Wall Street, Shilling tells Henry in the accompanying clip. If reforms like the Volcker Rule take hold, Shilling's "not sure Wall Street (will be) permanently bidding up the prices of Manhattan real estate and vacation homes in the Hamptons."

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  • Anymonyous
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    Anymonyous Fri Feb 04, 2011 10:11 am EST Report Abuse
    Now people will understand what the average worker goes through and never had a taste of the real good life. Like I am have been saying all this time and it is all going back to zero..... We just cannot sustain the way we are going. What is next and who knows and many people are not going to like it because basically, we already lost just about all our liberties and the writing is on the wall. People wanted change and got change but not the kind that everyone wanted. You cannot expect a President to give you free housing, job, and all these perks that people work for all their lives. Give me break!!!!! What were people thinking and yes, we need change and change is very good but not the way it going and this is not what people wanted it. In 2012 I hope people vote with the brains but even if it is Republican and does not matter and all for business. So here we are the economy is crap and the job are no where except very few good paying jobs and insurance is gone, people are now fighting for pension in varies of states. This is the change that everyone voted for. People need to really start THINKING and ask what is a good PRESIDENT? I am afraid it is too late folks.. it is what it is. Maybe they go up and explore the new solar system with the new six or seven planets and leave us here and they can screw that up as well. Not in my time that for sure. Like everything else and all this will pass and maybe we will go future for everyone and at the same time learn to accept some of the old basis of the passed. Very sad and I never seen so many people so unhappy today and depressed as well. Time for lots of Prays and Hope.

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