Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities?
Public finance theories of the median voter’s preferences and local public sector rent extraction posit that liberal cities and high amenity cities will feature a larger, better paid local public sector. Compensating differentials theory predicts that real wages will be lower in beautiful states and localities. Using both Federal and California city level administrative micro data, I study public sector compensation across space. At the Federal level, California workers are only paid 9% more than observationally identical workers in Alabama. Given the high California home prices, such workers are paying for the California amenities. Within California, beach cities hire more workers but pay them less in real terms. Liberal cities both pay public sector workers more and employ more of them. Liberal cities have much larger per-capita pension liabilities.
Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions
Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector’s productivity in delivering key services. To understand the productivity both over time and across space, we examine public bus service, which represents a standardized output for benchmarking the cost of local government service provision. There is significant dispersion across transit agencies in the operating cost per bus mile with the highest being more than three times as high as the lowest among top 20 largest cities by population. We estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis finds that the full privatizaton could result in cost savings of $5.7 billion in 2011 and that the gain in economic efficiency from more closely aligning bus fares with production costs would be worth at least half a billion dollars.
So, based on my work it is clear to me that public sector unions raise the tax price of providing public goods to citizens. In English, per tax $ that Mr. Ballmer pays --- we receive fewer actual public goods in places where public sector unions are stronger.