Are public-sector workers overpaid or underpaid?

Following on my earlier posting about Wisconsin and valuing employees, here is a comment from the Schumpeter blog over at the Economist that raises the broader issue (The government as an employer):

THE American blogosphere is abuzz with a debate about whether public-sector workers are overpaid or underpaid, with the left and right taking predictable positions. They are all surely missing the real point. Such workers are both overpaid and underpaid: the public sector is characterised by a relatively flat distribution of wages, with able people paid too little (and thus constantly poached by the private sector) and time-servers paid too much, and with the main driver of promotion being years of service.
It is clearly important to reduce the overall wage bill and bring public-sector pay and pensions under control. But, in the long run, it is also important to pay good people more, speed up their rise through the ranks, and generally widen the wage distribution in government jobs.

We need to modernize the system – not take a meat cleaver to unionization.

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