Tuesday, October 30, 2012

Private/Public Salaries, A Visual for a Trend (or, Another Boring Data Transformation)

I thought I'd get another post with political implications in before the election. Its not really timely or relevent, but its something I've been curious about for a while and just realized a way to investigate it.
Below is a chart showing the ratio of private employee labor compensation / public employee labor compensation. Unfortunately, the data doesn't go back as far as would be cool. But its something, and does seem to suggest that public pay has gotten slightly out of line with private pay in recent years, but the trend seems to be rapidly reversing itself.

What else can this graph tell us? Notice how the ratio of private/public compensation declines at a faster pace in the recession of 2008-2009. This could be an indicator that private wages are less sticky than public wages; and the rise in the ratio since then does seem to mirror the recovery rather well. As an aside, recall that in equilibrium we would want this index to be at 1.000. 

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