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Old 10-17-2011, 08:04 PM   #161
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Originally Posted by kombat View Post

I think a credible case could be made that today's public sector worker actually earns more than his private-sector counterpart, even before considering the gold-plated pension that comes with it.
The differences between pay levels for private vs public employees aren't all that important, at least not to me. What is important is whether we (tax payers) are paying more than necessary for the workforce of public servants doing our bidding. That is, are forces outside the market place causing wages to be artifically high in the public sector?

For example, teachers' unions have been extremely successful in driving up wages in the past couple of decades because:

1. Political clout
2. Establishing pay schedules that pay teachers of all subject areas the same amount based on educational level obtained and seniority.
3. Collective bargaining actions.

In our area, teachers' pay continues to escalate despite there being a glut of teachers. The need to pay more to attract math/science teachers benefits the non-related subject areas despite there being an extreme over supply in those other areas. And the threat of teacher strikes with so many dual career households (no one home to mind the kids if the teachers are on strike) sends shivers down the spines of working couples.

OTOH, Illinois just put a new pension plan into place for teachers hired after 1-1-11 which is somewhat less generous than the previous plan and which contains important rules to control gaming the plan ( excessive spiking, double/triple dipping, returning to work at the same job you retired from, etc.).

Interesting times for both the employers (tax payers) and employees.
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Old 10-17-2011, 08:32 PM   #162
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We can certainly argue who makes more, does more, has more responsibility, is more productive or has better benefits, but in cases like this an independent article may help. I think this article takes a pretty balanced approach and supports some of what Chris has been saying and also supports some of the other counterpoints:
Reason Foundation - Comparing Private Sector and Government Worker Salaries

You can draw your own conclusions, but its worth reading in its entirety for the complete story.
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Old 10-17-2011, 09:25 PM   #163
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We can certainly argue who makes more, does more, has more responsibility, is more productive or has better benefits, but in cases like this an independent article may help. I think this article takes a pretty balanced approach and supports some of what Chris has been saying and also supports some of the other counterpoints:
Reason Foundation - Comparing Private Sector and Government Worker Salaries

You can draw your own conclusions, but its worth reading in its entirety for the complete story.
Interesting article with a somewhat balanced view. I noted this from the article and think it explains the concern that some taxpayers have concerning the escalating cost of funding the public workforce:

Quote:
Unlike the private sector, where decisions on the number and compensation of employees are driven by supply and demand and economic realities, the size and cost of government employees is driven by the political process. Thus, government employees' labor unions are constantly pressuring legislators (who are frequently indebted to the unions for campaign contributions and other help provided to get them elected) to increase workers' wages and benefits, and legislators are always creating or expanding government programs that may or may not be needed or effective. These pressures are independent of economic constraints, and are limited only to the extent that taxpayers refuse to consent to additional borrowing or tax increases.
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Old 10-17-2011, 09:41 PM   #164
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•The city of San Jose, Calif., which pared 588 jobs in the current fiscal year, will have to ax up to 800 positions next year and shut down all libraries and community center programs unless it caps soaring pension costs, says spokeswoman Michelle McGurk.

I extracted this from today's USA Today edition. I copied this to support neither side, though I am a public pensioner. No matter which side you are on, certain pension funds and probably many city pensions are under stress. That is a lot of positions to be cut for a city if the "soaring pension costs" are the true culprit concerning San Jose. I'm sure the drop of value in local property taxes has compounded the problem. If this plays out, it doesn't take a huge imagination to see how this could play out. Close down the centers and libraries. The people who use these cry foul. The general population probably unwilling to pay additional taxes. Who might they "blame"?
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Old 10-17-2011, 09:49 PM   #165
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We can certainly argue who makes more, does more, has more responsibility, is more productive or has better benefits, but in cases like this an independent article may help. ...
I don't care to argue it, there's really no point. Just to make it a more apples-apples example, you would not get people to agree whether two different jobs within the private sector were really equivalent - there are so many variables, many are quite intangible ( office environment, etc). And one mans meat is another's poison.

I think a much better measure is whether they could fill the jobs. They made that point in the article (I just skimmed it), if a large number of qualified people apply for the job, the company has a fiduciary responsibility to its shareholders (and employees, or the company won't stay in business, then what?) to negotiate a lower wage for those positions. Likewise, a municipality has a responsibility to taxpayers to fill the jobs at the lowest compensation needed to attract the talent they need.

That BLS graph 2/3rd down the page bothers me. They plot private sector job numbers versus public, and of course the scales need to be different. But the % that each scale covers is different, so it distorts the comparison. The private sector scale represents a 7.4% change, the public more than twice that at 16%. They need to be at the same % scale if you want to compare changes in job counts.

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Old 10-17-2011, 10:40 PM   #166
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That is, are forces outside the market place causing wages to be artifically high in the public sector?

For example, teachers' unions have been extremely successful in driving up wages in the past couple of decades because:

1. Political clout
2. Establishing pay schedules that pay teachers of all subject areas the same amount based on educational level obtained and seniority.
3. Collective bargaining actions.

In our area, teachers' pay continues to escalate despite there being a glut of teachers. The need to pay more to attract math/science teachers benefits the non-related subject areas despite there being an extreme over supply in those other areas. And the threat of teacher strikes with so many dual career households (no one home to mind the kids if the teachers are on strike) sends shivers down the spines of working couples.

OTOH, Illinois just put a new pension plan into place for teachers hired after 1-1-11 which is somewhat less generous than the previous plan and which contains important rules to control gaming the plan ( excessive spiking, double/triple dipping, returning to work at the same job you retired from, etc.).

Interesting times for both the employers (tax payers) and employees.
Well, circumstances of course vary from state to state. Take for example my state, Virginia, a right-to-work state, with public unions lacking the ability to bargain collectively over any terms or conditions of public employment. Yet, Virginia civil servants have generous public pensions, public servant pay is modest especially when compared to the pay scales of the federal employees situated 2 hours from Richmond or in military bases throughout the state, and teachers throughout the state have been frozen in pay in a lot of counties well before the Federal government initiated its pay freeze. The union bogeyman doesn't negotiate higher public pensions in the Commonwealth.
The Virginia example; Public employees in this Southern state can't negotiate labor contracts, so their pay and benefits ultimately depend on decisions made by politicians - Fire Engineering

I do think there are political forces that may contribute to better pensions and benefits for public servants, but it's not entirely the result of hard bargaining from public unions.
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Old 10-17-2011, 11:16 PM   #167
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Look at it from the perspective of someone WITHOUT a pension. What percentage of their own income would they have to save and invest in order to get a comparable benefit (an income stream equal to 30% of their final salary, indexed to inflation, guaranteed for life)?

If the answer is "6%," then you're right, and such a pension is not excessive at all. If it's "a little more than 6%," then it gets a little more debatable, but still hardly what any reasonable person would call "excessive."

The truth, of course, is that the regular person would in fact have to save far, far more than 6%. If a regular Joe enjoyed the same salary as a worker with the pension you describe, and saved 6% of his salary in retirement accounts that earned an average of 8% return, plus got regular 3.5% annual salary increases, then at a standard 4% SWR, the resulting nest egg would replace less than 10% of his final salary (and be empty after 30 years, compared to your "guaranteed for life" pension).

So I think a case can be made that a lifetime guaranteed benefit that replaces 30% while costing only 6% contributions is indeed excessive, and far more generous than the vast majority of working Joes can expect to enjoy in retirement.
There are several mistakes here . First , the pension is part of the total compensation that a worker receives. I accepted a lower wage than I could have earned because of the pension. Had I NOT had a pension, I would have sought a higher wage. It is not reasonable or fair to isolate the pension from the total compensation package.

Second, the pension is not fully indexed to inflation as the comment states. There is a limit and if we return to inflationary times, it will diminish in real value.

Third, comparing me to the 'vast majority of working Joes' does not make sense. The vast majority of working Joes' have not spent over 7 years in post high-school education so they can earn more. The same Joes have not given years of earnings to get that education. These same Joes have not spent tens of thousands of their own dollars getting that education.

Forth, I know many of these Joes whose compensation far exceeds mine. People who get bonuses in the thousands of dollars every year, people who retired with full medical benefits, people who get stock options that are worth hundreds of thousands of dollars, people who earn six figures every year, people who get to drive company cars off the clock. I could easily make the case that I am worse off than many Joes.

Fifth, why should I look at it from the point of somebody with no pension? I did nothing that these Joes could not have done had they been willing to make the sacrifices I made. There was no good fairy to grant me special wishes, I had no connections or family name. Much of my advanced education was achieved while raising children and working full-time. I have made my share of financial mistakes and had my share of bad luck, but I don't ask people who did not make similar mistakes to give up their rightful earnings because of my errors or bad luck.

Finally, even if the state took away all of my pension and I was forced to sell my home and live on the street, would any of these Joes benefit? Does anybody believe that they would suddenly be getting a nice pension and a better retirement? Read the book that started this thread. It is not the working man's pension that is the problem (public or private). As I have said, the Big Boys have got us fighting for crumbs while they feast.
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Old 10-17-2011, 11:22 PM   #168
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The differences between pay levels for private vs public employees aren't all that important, at least not to me. What is important is whether we (tax payers) are paying more than necessary for the workforce of public servants doing our bidding. That is, are forces outside the market place causing wages to be artifically high in the public sector?

For example, teachers' unions have been extremely successful in driving up wages in the past couple of decades because:

1. Political clout
2. Establishing pay schedules that pay teachers of all subject areas the same amount based on educational level obtained and seniority.
3. Collective bargaining actions.

In our area, teachers' pay continues to escalate despite there being a glut of teachers. The need to pay more to attract math/science teachers benefits the non-related subject areas despite there being an extreme over supply in those other areas. And the threat of teacher strikes with so many dual career households (no one home to mind the kids if the teachers are on strike) sends shivers down the spines of working couples.

OTOH, Illinois just put a new pension plan into place for teachers hired after 1-1-11 which is somewhat less generous than the previous plan and which contains important rules to control gaming the plan ( excessive spiking, double/triple dipping, returning to work at the same job you retired from, etc.).

Interesting times for both the employers (tax payers) and employees.
If we are going to discuss teacher pay, in all fairness we should discuss the pay in your profession also. Care to share that with us?

And remember that public employees pay taxes also. The separation between tax payers and employees is a false one.
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Old 10-17-2011, 11:36 PM   #169
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And the threat of teacher strikes with so many dual career households (no one home to mind the kids if the teachers are on strike) sends shivers down the spines of working couples.
I do not agree with those who think public employees should strike. But, I also do not believe that teachers are there to 'mind the kids' for working parents.
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Old 10-18-2011, 12:29 AM   #170
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I don't think that any employee should have to give up a pension because the employer did not fund it over the years as they should have.

That seems to be the general consensus of the participants of this thread. I Haven't seen any posts suggesting that earned pensions be given up due to no or inadequate funding.

You seem paranoid about this. You've mentioned it more than once. Is there an actual threat to your pension at this time? Or are you just extrapolating the comments here about changing public employee pensions in the future to your already-earned pension?
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Old 10-18-2011, 12:34 AM   #171
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The factory workers I know make pretty good money, well over $30 per hour plus benefits. They also get paid overtime. And they have pension plan that their employer pays into. Sounds good to me!

But that is not my main point. My point is that you earned your pension, and deserve it. There are people, not on this site, who would be happy to take that pension away from you if it meant they could buy the products you helped make for 20% less. Or, if they could pad their own pockets with extra executive bonus money. Alas, neither you or I can go back in time and make a different set of choices in that event.
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Old 10-18-2011, 12:48 AM   #172
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Well, the factory workers are doing well, but not everybody. I know several people in banking who got shafted when their employer went under after making a lot of very risky real estate loans, and then got taken over by the Feds. (Oh, the guys on the top who ran the organization, still got paid millions, so there is no need to lose sleep over their fate.)
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Old 10-18-2011, 01:25 AM   #173
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+1. These are the same Big Boys who have brought our economy to its knees. Let's hope this does bring a civil war in the future between the "have's" and the "have not's". There are lot of angry people out there.
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It is not the working man's pension that is the problem (public or private). As I have said, the Big Boys have got us fighting for crumbs while they feast.
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Old 10-18-2011, 01:28 AM   #174
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I have a feeling I have fallen into the trap I was warning about. That is working folks disagreeing with each other while the people who caused this mess are profiting very nicely. So, it's time to say honest people can agree to disagree and leave it at that.
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Old 10-18-2011, 01:46 AM   #175
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That seems to be the general consensus of the participants of this thread. I Haven't seen any posts suggesting that earned pensions be given up due to no or inadequate funding.

You seem paranoid about this. You've mentioned it more than once. Is there an actual threat to your pension at this time? Or are you just extrapolating the comments here about changing public employee pensions in the future to your already-earned pension?
Actually, there are some people who are advocating this, despite the fact that the pension fund I am in is pretty much fully funded. I think they read scare stories about a few excesses and assume all public employees benefit from this largess. For example, I have neighbors who actually think I get fully paid medical when I retire. In reality I get no paid medical as part of my retirement plan.
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Old 10-18-2011, 01:53 AM   #176
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Actually, there are some people who are advocating this, despite the fact that the pension fund I am in is pretty much fully funded. I think they read scare stories about a few excesses and assume all public employees benefit from this largess. For example, I have neighbors who actually think I get fully paid medical when I retire. In reality I get no paid medical as part of my retirement plan.
Is there an actual threat to your pension or just "some people" talking about it, such as the neighbors you mentioned?

Even in politically corrupt Illinois where the state fiscal condition is the worse in the nation, there is no talk of changing the pensions of current annuitants or the already earned pensions of active employees. Only new hires (after 1-1-11) are included in the new pension structure which, while not as generous as the old one, is still a very attractive package by today's standards.
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Old 10-18-2011, 02:58 AM   #177
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I don't think there is necessarily much to be gained by trying to figure out who is to blame. Even if it's possible to figure out where the blame lies, it may not be possible to get the money back from the guilty party or parties. It's more useful, IMO, to determine how to fix the problem and prevent it from recurring, and that solution is going to vary from system to system.
(I'll take this second part first...)

Unfortunately, there's a lot of truth to that. If we were somehow to determine that certain politicians and/or labor leaders were 'to blame', it's not like they have enough money in their pockets to make a dent in the damage they have done (and this makes the wild assumption that we could get our hands on what they have). But one benefit of analyzing the 'blame' is to help prevent it going forward.
Maybe it is splitting hairs, but I differentiate between finding the cause of a problem and placing the blame for a problem. Finding the cause asks "why?" or "how?" the problem arose, with the goal of solving the problem and preventing recurrence; placing the blame asks "who?", possibly with the aim of punishing the culprit. IMO, answering the "why" and "how" questions is of much more useful than answering the "who" questions. If the problem is spiking, for example, it won't raise the funding level a bit to determine that it was union reps or politicians or both or neither who created the loophole. The only thing that will help get the fund back to solvency the important thing is to close it and stop the drain on the system.

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OK, each case is different - but what to do in the case you describe? Ideally, we would want that fund to get back to 100% funding. Offhand, I have to wonder if they were too aggressive with their AA to have a 45% drop for a market drop of 25%. I assume the rest is draw down from pension payments, but that seems like a lot of draw down if it was really 100% funded, but one would need some numbers and do the math. I wonder if the 100% number was based on too optimistic assumptions - maybe we would say it was not really 100%?
I wonder if the AA wasn't too aggressive also, but that's 20-20 hindsight. IIRC it's roughly 60% equity/40% fixed, which is pretty typical of pension funds, isn't it? Of course "pretty typical" and "overly aggressive" are not mutually exclusive. Maybe the typical pension fund was too aggressive, and that's why so many are in trouble now. But even if the fund was too heavy on stocks, that doesn't prove that anyone knowingly took action which they knew in advance it would result in underfunding. To assume this is the case would still be attributing to malice what may have been due to ignorance on the part of pension fund management and/or the actuaries.

There was another contributing factor. The reason I know the fund was at 100% in 2007 is that that's the last time the floor COLA was increased. This wasn't the result of anything done at the time by either the union or public officials, it went up because hitting 100% funding automatically triggers an increase, a feature that was written into the ordinance that established the floor, back in 2000 or so. Who wrote the original legislation, at whose prompting, and what the actuaries said about it at the time, I don't know and don't really care. I do think the automatic ratcheting-up of the floor COLA should be removed. The way the law is written, it raises the floor without raising the contributions to compensate.

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So are they discussing ways to increase the funding level? That could be increases in employee contributions, employer contributions (from taxpayers) or cuts to benefits. Or, one could assume the market will come back and everything will be fine. Have they considered an insurance program - similar to what private pensions do (the PBGC). With that insurance program, a collapsed pension plan does not go to taxpayers for help, they tap into the insurance plan that they have been paying into.

I won't re-hash the details, and I would not want to see promises to the workers altered, but it isn't reasonable to think there would not be push-back from taxpayers if the biggest part of the answer is raise taxes to fix it. They have their own problems to deal with, and they're not getting help.

-ERD50
Yes, means of increasing the funding level are being discussed. Both employee contribution rate and employer match went up one percentage point the beginning of this year and will go up by the same amount starting Jan 1 2012, which is about a 25% boost in total contributions (from just over 8% to just over 10%). The latest idea I have heard about is changing the credit interest rate (used to calculate lump sums). That has been passed by the Board of the pension system so the City Council will be voting on it in the near future. I checked, and the Seattle fund is definitely not covered by the PBGC; as far as I know, there is no existing insurance system for public pensions. Maybe that's a good idea for the future, but right now, I don't see where a pension system would get the money to pay for insurance when it's underfunded already. The premiums for such a system would doubtless be sky-high, just like health insurance for someone with a pre-existing condition.
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Old 10-18-2011, 03:10 AM   #178
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I'm pretty sure. If not actuaries themselves, those union leaders can hire actuaries. Just because the average American is a dope doesn't mean every union leader is. I said above that in Hawaii, the unions were well aware of the government's raiding the pension funds, and I referred to the lawsuit of 2002 which sought (vainly) to prevent that from continuing. Thinking that you did not read this, or simply didn't believe me, I've looked up a couple of news articles chronicling the suit from the police union, Lawsuit to test raid of state pension fund | The Honolulu Advertiser | Hawaii's Newspaper, and the interesting follow up of the Hawaii retirement system itself joining that suit: ERS joins pension fund lawsuit against state | The Honolulu Advertiser | Hawaii's Newspaper.
I did read your earlier comment and don't doubt that the events took place as you describe. My point was that deliberate misdeeds are not the only way pension funds can get into difficulties.
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Old 10-18-2011, 07:27 AM   #179
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We can certainly argue who makes more, does more, has more responsibility, is more productive or has better benefits, but in cases like this an independent article may help. I think this article takes a pretty balanced approach and supports some of what Chris has been saying and also supports some of the other counterpoints:
Reason Foundation - Comparing Private Sector and Government Worker Salaries

You can draw your own conclusions, but its worth reading in its entirety for the complete story.
Interesting article but basically just an opinion piece by a guy with an agenda. Very little factual basis, just the kind of though experiment we do better here.

Examples. He posts a chart to show how while private sector employment was falling during the current recession CA government employment went up slightly. Of course this happened during a period of massive public stimulus spending to maintain public sector employment and ignores seasonal drops. He notes in passing that the study he is arguing against finds that public sector workers are more highly educated than private sector workers but then posits that maybe they are from lousy schools or don't need the education. Couple this with his statements about how everyone knows how inefficient and non-productive government workers are and one begins to wonder. If people are begging for jobs why is government only able to attract incompetent loosers? The government managers are effective in reverse selection?

I share the author's skepticism that public compensation (overall) lags comparable private compensation but his article doesn't shed any light.
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Old 10-18-2011, 08:01 AM   #180
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Overall, I agree with your (donheff) post - the article is mostly viewpoint. I have a few minor points to nit-pick though...

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...
Examples. He posts a chart to show how while private sector employment was falling during the current recession CA government employment went up slightly. Of course this happened during a period of massive public stimulus spending to maintain public sector employment and ignores seasonal drops.
True, but I don't think that makes the point any less valid, in fact I would say it makes the point even more fully. As you say, the stimulus went to public workers, not so much to private. That's a clear advantage for the public sector, no?


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is government only able to attract incompetent loosers? The government managers are effective in reverse selection?
I think other factors could be used to explain if (and I'll say 'if' since I don't have any hard data to back it up) public workers are less productive overall. It could very well be the environment. If a person feels they have a very secure job, and if there is no hard data to measure their performance (and no significant merit raises/bonuses), and there isn't an overall environment of "we have to get this product/service on line this week, or our competitor beats us to it, and we will all be out of a job...', well, that is quite a motivator. And before anyone jumps on me, I did say "if', and I'm sure there are some highly motivated hard working people/departments in the public sector. And there are some slugs in the private sector. I'm just saying there are some factors that could explain much of any general difference that may exist.

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