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Editorial See other Editorial Articles Title: Cut Pay For Government Workers That's the only way to get serious about the deficit. Imagine a company that dominates its field. It's been No. 1 in its industry as long as anyone can remember. But lately it's fallen on hard times. Revenue has dropped dramatically. The only thing keeping it afloat is record borrowing based on its stellar credit rating, earned many years ago. Meanwhile, independent analysts have shown that workers at this company earn higher than average wages. Moreover, the workers have skills that are not easily transferable. If this were an airline or an automaker, the solution would be a no-brainer: It would be time for a big pay cut. If the company didn't cut pay, or increased it, creditors and investors would question the seriousness of management. But this is exactly what President Obama did in his most recent budget--request a wage increase of 2% for civilian federal workers in 2010. It's no wonder some are questioning the financial stability of the U.S. So why don't we do something serious. How about an outright pay cut of 10% for all civilian federal workers? Just to be clear, we're not just picking on President Obama here. The pay increase in his budget would actually be the smallest in 20 years. But total compensation per federal worker--cash earnings plus fringe benefits--now averages twice that of the private sector. So cutting cash earnings by 10% across the board seems not only reasonable, but justified. Truth be told, it would not save a great deal of money, at least not up front. The payroll (wages and salaries) for civilian federal workers is about $150 billion per year, so a 10% cut would only create $15 billion in outlay savings. Nonetheless, a one-time pay cut of 10% permanently shifts future wages onto a lower path. With today's interest rates, the present value of all future outlay savings would total roughly $750 billion. This is a drop in the bucket when compared with the total of all of the federal government's unfunded liabilities, which have reached nearly $70 trillion. But the message is just as important as the amount. Perhaps state and local governments would get the message and generate even more budget savings. Those jurisdictions have, in total, an annual payroll of about $800 billion, so a 10% cut would generate much more than the same pay reduction for federal employees. Even exempting teachers, a 10% cut could generate almost $40 billion per year. Lenders around the world are rethinking sovereign credit risk. Lately Greece has been the focal point, but talk of a U.S. debt downgrade has also occurred. We doubt the America's debt rating will be downgraded, but just hearing the discussion is making Alexander Hamilton (the first Secretary of the Treasury) turn over in his grave. For the president's budget to propose federal worker pay hikes while unemployment is at 9.7%, after so many private-sector workers have had to suffer pay cuts or layoffs, the signal being sent is clear: The U.S. is not yet serious about the deficit. Brian S. Wesbury is chief economist and Robert Stein senior economist at First Trust Advisors in Wheaton, Ill.They write a weekly column for Forbes. Brian S. Wesbury is the author of It's Not As Bad As You Think: Why Capitalism Trumps Fear and the Economy Will Thrive.
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Cut Government Workers
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