Monday, January 18, 2010

Does voting for an inefficient government make sense?

Given a distribution of skills and interest in public service in the labor force, would it be best if the public-minded workers go into government or to the private sector? Essentially, this is what Esteban Jaimovich and Juan Pablo Rud ask. If the better ones go private, then the unmotivated ones go into government and wreak havoc: they seek rents, hire more public (low-skilled) employees, thus inflating their wages and depressing the returns of the most skilled private workers, which lessens their incentives to do better in terms of entrepreurship. Jaimovich and Rud also claim that this outcome is actually preferred by the (low-skilled) working class, because of the higher wage. They also support the outcomes of their model with observations from the data.

While it seems obvious that a government with more public-minded officials is better, the point about the wage inflation in the market for low-skilled workers is interesting. It also highlights once more that a good mechanism for the self-selection of workers into public and private jobs is essential. If public wages and side benefits (bribes included) are such that public-minded workers are better off going private, the whole economy suffers. That means, you need to pay civil servants well, but not necessarily better than private workers. But at least, remove incentives to complement wages with bribes.


Anonymous said...

This issue entirely revolves around public employees access to the media. For instance, police and firemen have access to the media and declare thier respective occupations dangerous. No doubt true, but other private sector occupations are more dangerous and life threatening than theirs. Commerical fishing, logging, highway workers have a higher on-the-job mortality rate than those two municipal occupations but most only hears how dangerous police and firemen have it. This is because news media is always looking for a story. The more exposure to the media, the more those two occupations complain about the dangers they face and low wages they receive. The advantage of being a civil servant is being able to position themselves as local communities self-fulfilling prophets. In fact, most civil servants have higher pay and more and better benefits, especially healthcare, than the average taxpayers funding those occupations through mandated, confiscatory taxes.

However, the size of government employees have grown in size the past 50 years now makes them a sizable block of voters not to be messed with or risk losing an election. The is the dilemna in local taxes and federal spending. Many times government is the largest employer in a city, state, as well as federal government. It is a vicious circle than no one can get a fiscal handle on.

Danny L. McDaniel
Lafayette, Indiana

Vilfredo said...

Danny, you comment has nothing to do with why some countries have a more efficient public sector. If we follow your reasoning, because US media are willing to jump on any story, would have the least efficient and most wasteful public sector of the world. Believe me, this is far from true.

Xerographica said...

Once you use taxes to deal with the free-rider problem then the invisible hand can allocate public goods as efficiently as it allocates private goods.

It would be as simple as allowing tax payers to vote with their taxes.