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

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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