Adam Smith Institute

A recent article from my hometown newspaper pointed out an interesting quirk about Minnesota’s (and most government) wage scales. In Minnesota, the legislature votes on the governor’s salary. There is a cap on the governor’s salary of $120,303 and also a law that state executive-branch employees cannot earn more than the governor.  These laws have had the effect of keeping most state employee salaries from increasing very little in the last ten years and the governor’s from increasing at all.

One of the concerns presented in the article is that the public sector may lose out on skilled employees to the private sector because of the cap on wages. With higher gains to be made in the private sector, the more innovative, competent, and motivated employees will leave public service jobs. That is why salary caps, and minimum wages to the disbelief of many, are bad news for labour markets. They distort the market’s natural tendencies to arrive at wages that benefits society the most. Government jobs, especially those towards the top of the scale, don’t function in the usual market terms because wages are left up to legislation. If this was a private sector problem the caps would be removed and things would be sorted out through the market.

While government salaries should be decided upon by the legislators, they should coincide with comparative market salaries and not include useless stipulations. At the very least, they should keep with inflation. Finally, the salaries should be transparent to ensure accountability and allow public scrutiny.

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