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Abstract

This article investigates the evidence used in the debate over public-sector collective bargaining and privatization as US states attempted to resolve their budget problems. Specifically, the article evaluates the research on whether US state and local government workers are overpaid and whether privatization provides a cost-effective alternative to the provision of public services by public employees. All recent studies find that state and local public employees earn on average lower wages than comparable private-sector workers and on average receive better health benefits and pensions than private-sector employees. Most studies find that the better benefits offset lower wages on average, and there is no state and local public employee compensation premium. The research on privatization in the USA indicates that it has reached something of an equilibrium with approximately one-quarter of municipal public services being provided by private organizations. The major costs of privatization include overhead costs of competitive bidding, monitoring, oversight, and evaluation, which if done properly can often offset any privatization cost advantage, while if privatization is done without adequate controls, it can result in corruption, poor quality services, and then demands for reverse privatization.