Originally published at RealClearMarkets.
Hiring in the U.S. rose by 272,000 in May, a stronger than expected figure. Wages rose as well. The second most active sector was government, particularly municipalities. While I have some friends who are on these payrolls, its growth is problematic over the long haul.
Business owners have to compete for labor. When government adds to its rolls, especially locally, it puts pressure on mom & pops. They can’t simply wave a magic wand and decree higher compensation in order to retain employees.
They must be succeeding at satisfying customers, repeatedly, and outpacing competitors. Government doesn’t have to worry about that. It has no competition, and is never going out of business. It can rely on taxing citizens to hire workers at artificially inflated pay.
Faced with this, small businesses have a choice: raise prices or absorb the costs, or both. Either way, they are that much closer to closing their doors. One group that wouldn’t mind that is their larger competitors.
For a political class that likes to extol the virtues of small businesses, giving their bigger brethren any kind of leg up is a strange way to translate that into action. But even the bigger boys may not be immune.
A related issue here in the Alamo City lately has been whether or not to lift the statutory cap on the city manager’s (CM) pay. Since it’s anchored at 10X that of the lowest-paid city worker, activists tried to leverage this to push for raising their wages in the name of pay equity.
Raise their pay, raise his pay.
One city councilman who favors this cautioned about subsequent payroll “compression. You would want to make way for” mid-level city employees “to receive better compensation” as well. These are your finance professionals, engineers, HR folks, software developers, etc. you’ll find more of in bigger firms.
When government strives to be an “employer of choice,” it lures all these folks away from the private sector, where they would otherwise be helping create much more value for society. From January through March, that hiring pace increased here by almost 50% over the prior quarter.
Governments don’t exist in a bubble. Their actions radiate outward into society, the effect being particularly acute on the local level. The possibility of unintended consequences seems to rarely be factored into decision-making.
Slower growth, more government dependency, and all the entrenched poverty and crime that comes with it.
Corporate executives who can afford political influence with max campaign donations don’t have to sweat this. Special interests who benefit from government largesse are happy to go along. At the end of the day, it’s always the same person who gets stuck with the tab: the regular citizen.
Budget season is upon us. Taxpayers better get their checkbook out and gird themselves. This bill is coming due soon.