July 9, 2006
Turnover of High Level Public Employees
Turnover of High Level Public Employees-BECKER
Quit rates of secretaries and other lower-level federal government employees are considerably below those of comparable workers in the private sector, while government officials quit at much higher rates than their civilian counterparts. What explains this difference, and is it good or bad?
The first part of the question is easy to answer: differences in quit rates are due to differences in the ratio of federal compensation to compensation in the private sector at low and high lob levels. Federal employees at lower level jobs may not make more than their civilian counterparts, but their economic situation is quite good when all other characteristics are taken into account. Government workers at these levels have great job security since they cannot be fired after a short probationary period, except for the grossest forms of misbehavior, such as frequent absences from work, racial or sexual remarks, etc. In addition, they get many holidays, good vacations, generous pensions and health benefits, and are usually not under much pressure at work. The full set of characteristics offered to these federal employees is very attractive, which is why lower level jobs attract many applicants, and the jobs must be rationed through tests and in other ways.
By contrast, federal employees at higher-level jobs-including senior executives in the Department of Homeland Security that Posner discusses- are paid considerably below that of comparable private sector executives. In order to attract and keep high quality employees, the federal government must provide enough compensating advantages in the form of prestige, power, working conditions, and in other ways. There is little turnover of federal judges presumably for that reason since most of these judges could earn much more as practicing lawyers, even judges who, unlike Judge Posner, are not particularly energetic.
For many high-level federal officials, government service is a short-term option that may provide interesting experiences, including learning about various policy issues. But after a while the much higher compensation in the private sector becomes too tempting-of course, their short stay in the government may have been anticipated- and many officials quit the federal government after only a few years (or less).
It would be possible to reduce turnover of federal officials by significantly raising their pay, so that it becomes closer to what they could receive in the private sector. As with federal judges, turnover might be low even with pay that remained considerable below that in the private sector, but not as much below as at present. Some talented men and women like working on public problems of great importance, the security of job tenure would appeal to some, and so on.
Members of Congress currently receive salaries of $165,200 per year-leaders in the House and Senate receives a little more- plus generous retirement and health benefits. That is a lot relative to the pay of most employees in the private sector, and there does not seem to be a shortage of men and women who want to be elected to Congress. Under present rules, it is not possible to pay senior officials in Homeland Security or other agencies more than members of Congress receive, even when higher pay is necessary to fight off the appeal of employment in the private sector. To pay top public officials much more than they already get would require a change in these rules, which would not be politically easy.
Yet for the sake of this discussion, suppose it were possible to cut down the turnover of federal officials in the Department of Homeland Security and elsewhere. Would that be desirable? I believe that having more experienced employees is as valuable to the federal government as it obviously is to the private sector. Turnover of executives with years of experience at the same private company is low- clearly much below that among federal employees- because these companies value that experience. Long time executives accumulate useful knowledge about the organization and practices of the firms they have worked for over the years-what economists call firm-specific capital. I see no reason why such knowledge should be much less important in the federal government. As Posner indicates, Great Britain and some other countries do manage to retain high-level officials of good quality over much of their working lives.
Turnover of federal officials is undesirable for another reason that is not really applicable to the private sector. There is much "rent-seeking" by private companies that try to get special treatment and subsidies from the federal government as it spends huge resources. Hiring of former federal employees to top executive positions at private companies helps them improve their rent-seeking position vies a vies competitors. In particular, if competitors all hire former top executives of the Department of Homeland Security, that may simply offset their rent-seeking positions without adding social value. At the same time losing many top executives weakens this department.
So I favor higher pay for top federal officials in sectors that experience heavy turnover. However, without major changes in pay scales, I am skeptical about the advantages of developing much more stringent rules that prevent federal officials from going to work for suppliers of services or products to the agencies that employed them. The risk of such rules is that they eliminate one of the major present attractions of federal employment at high-level jobs. Adding such rules to the low pay would then make it even more difficult for federal agencies to attract able and honest top-level executives.
The Economics of the Revolving Door--Posner
Articles by Eric Lipton in the June 18 and 19 issues of the* New York Times* discussed the "revolving door" phenomenon with specific reference to the Department of Homeland Security. According to Lipton, although the Department is only three and a half years old, already more than two-thirds of its senior executives have quit for jobs in the private sector, mostly working for companies that have or seek contracts with the Department, which has an annual budget of some $40 billion. These executives, some of whom had come to the Department from the private sector for brief stints in government sservice, are paid multiples of their government salaries when they leave to join or rejoin the private sector. Although departing government employees are forbidden to lobby their former government employer for a year, the prohibition is particularly porous in the case of the Department of Homeland Security because a former employee is permitted to lobby from the start any unit in the Department for which he did not work. The Department is a conglomerate of 22 formerly separate agencies, with overlapping responsibilities, and there are subunits with each of the agencies.
Should the revolving door be stopped or slowed? Two considerations favor the revolving door. First, people who have served in government have useful information about government's needs and procedures; that information can enable a better matching of government contractors with the agencies that purchase their services. Second, the opportunity for lucrative private employment after a stint of public service reduces the cost to the government of obtaining able employees. The compensation of government employees includes not only their government salaries but also the enhanced private earning capacity that they acquire by their government service.
But these points are persuasive only with regard to career government employees, in the sense of people who worked for the government--initially at least at a junior level--for many years. They accrue valuable knowledge over the course of their employment and the prospect of eventual private-sector employment substantially increases in real terms their meager compensation as government employees. Not that there isn't a loss; many of the ablest and most experienced government employees leave government well before normal retirement age, while the least able stay till or beyond that age because of the difficulty of firing government workers.
The system can also produce transitional crises, as illustrated by the hemorrhaging of government security personnel in the wake of the September 11, 2001, terrorist attacks. The attacks caused a surge in private demand for security personnel, resulting in a sudden and substantial loss of experienced CIA, FBI, and other security officers to the private sector at greatly increased salaries. The increased ratio of private to government salaries represented a windfall for these officers because it had not been anticipated. In the long run, however, these windfalls become anticipations that will enable the government security services to hire abler people because they will foresee superior private-sector opportunities. In other words, as a result of the continuing concern with terrorism, working for government security agencies confers on one more human capital than before 9/11. Meanwhile, however, there is tremendous turnover in government security agencies, and a resulting decline in the quality of those agencies, as senior officers vacate their positions for the private sector and are replaced by inexperienced juniors. The impact on quality is aggravated by the disuptive effect of rapid turnover in any organization.
The exodus of officials of the Department of Homeland Security for the private sector, about which Lipton wrote, is a distinct phenomenon. Many of them are people who had come to work for Tom Ridge in the White House when he was the President's homeland security advisor and went with him to the Department when it was formed in March of 2003 and he became the first head of it. Many did not have extensive or relevant government experience. Moreover, the Department has from the outset been grossly mismanaged. The fault lies mainly in the design and structure of the Department and in the haste with which it was created; but no one considers it, even given these constraints, a well-managed enterprise. The companies that have hired these officials do not care, however, because they are not hiring DHS officials for their managerial expertise. They are hiring them in the hope that it will facilitate the obtaining of contracts with the Department.
The Department needs contracts, of course, and its former officials doubtless have a good sense of how a contractor can make an attractive pitch to the Department; otherwise the contractors would not have hired these officials at high salaries. But whether the officials are actually knowledgeable about the Department's needs is another matter. Many of them were birds of passage, who never became real experts on security. There is warranted suspicion that many of them got their high positions in the Department by reason of political contacts, and those contacts may enable them to land contracts for their new employers that are not in the government's best interest. So the first reason I gave for why "revolving door" practices may serve the public interest is probably absent in the case of senior officials. And likewise the second. The prospect of subsequent reemployment by the private sector probably attracts few able nongovernment people to government jobs. It is disruptive to give up one's private job to work for government for a short time with the aim of then returning to the private sector at a higher level--a level one might well have attained in the ordinary course of promotions and job changes had one remained in the private sector.
Moreover, there is what economists call a "last period" problem that is more serious in the "bird of passage" case than in the case of the career government employee. An individual in the last period of his employment (or a company that is about to go out of business) is not restrained in his self-interested behavior by concern that his employer will fire him (or, in the case of the company, that its customers will desert it). Any government employee who has decided to seek private employment may be tempted to make decisions that will make him more attractive to prospective private employers; the added problem with the "birds of passage" is that their entire government service is last period because they know they are going to return to the private sector soon. All their decisions as government officials may be influenced by a desire to position themselves for as lucrative a reentry into the private sector as possible.
What might be done to alleviate the revolving-door problem? One possibility would be to restructure the civil service so that it paid better and, as important, reached higher in the government system. In the United Kingdom, civil servants occupy the highest posts in government just below the ministerial level. The opportunity to become a permanent undersecretary is an inducement to the ablest civil servants to remain in government service for their entire, or at least a very long, career. In our government quite junior officials, such as assistant secretaries of department and even many deputy assistant secretaries, are appointed from outside the ranks of the civil servants. These are, many of them, the birds of passage; and the diminished promotion opportunities for the civil servants makes a civil service career much less attractive for able and ambitious people than it would otherwise be.
The major exception of course is the military, a branch (realistically) of the civil service in which one can rise to a very high rank, because there is no lateral entry into the uniformed service. The CIA and FBI are other exceptions, since among their top officials ordinarily only the director himself is appointed from outside the agency staff.
Of course there would be costs in strengthening the civil service--one being that the able people it attracts might be more productive in the private sector. But the challenges faced by the American government at present are so acute that we must take steps to improve governmental efficiency, and reform of civil service may be one of them.