Peer Comparisons Shouldn’t Be Used For Public Worker Pay

In an editorial for the Grand Forks Herald, Tom Dennis rightfully takes aim at the use (to the exclusion of all other metrics) of “peer comparisons” in setting pay for public workers.

“Once — just once — we’d like to see a report on public-sector salaries that looks at turnover, vacancy and application rates in addition to ‘peer comparisons,’” writes Dennis. “Just once.”

It is frustrating to hear the case made, over and over again, that because teachers or librarians or university presidents are paid a certain amount in some other part of the country we ought to be paying them that amount here in North Dakota. But what people are paid in other parts of the country have very little to do with labor markets here in North Dakota.

In his editorial Dennis allows some room for peer comparisons to be one metric in deciding pay, but I’m not sure it should be a consideration at all. What’s important is whether or not a given level of compensation is effective in attracting a sufficient number of qualified applicants and sufficient to retain them once hired. That’s it. Private sector businesses hiring in North Dakota don’t worry about what other businesses in other parts of the country are paying. They concern themselves with the level of pay necessary to attract the labor they need in the market they’re operating in.

That, of course, is because private businesses are spending their own money, as opposed to government which spends other people’s money.

The other problem with public sector pay is that it is monolithic. Rather than pay being doled out based on accomplishment and merit, it is paid based on when a worker was hired. Not only does this give good public workers little reason to excel, it rewards poor public workers for doing the bare minimum. Meaning the taxpayers are stuck overpaying a lot of people who really don’t deserve what they’re getting, while underpaying the workers who are worth their pay and probably more.

Models like “peer comparisons” are a neat truck for public worker unions, who can steadily raise the tide of public worker pay by endlessly playing the states and communities off one another.