I wasn't claiming that the public sector was a free market. The original statement I made, that you responded to, was about private-sector pay and benefits. I alleged that what we really should be asking is not why public sector employees have it so cushy, but rather why private sector employees DON'T. (Which relates directly, in fact, to the decline of private-sector unions, while they remain strong in the public sector.) That's when you talked about a "free market" being better in terms of setting wages and benefits, and why I asked you that question.
The answer doesn't change based on how you ask the question. To put it simply;
Q: Why does the public sector employee have it so cushy compared to the private sector employee?
A: Because the public labor market does not operate in a free market
Q: Why does the private sector have it so tough and the public sector is doing so well?
A: Because the public labor market does not operate in a free market
If you want to break it down to the most simple concept as to why the public sector makes more than the private, the simple difference is CHOICE. We, as individuals, through our spending, are what provide other people their income. In the private sector we essentially have choice in how much income someone else is going to make, because we have choice in what we purchase. In the public sector we do not have choice in what public employee makes. Their income is not dependent on our choice to consume a product or service. Everyone has their money taken from them through no choice of their own through taxes to provide the income for those individuals. Obviously the earning potential of one who can have what they earn ultimately taken from people is going to be higher than an individual who's income is dependent on people who can choose.
That's not really a difference between public and private employment, though, except for really small businesses that have a single owner who runs everything. The person making the decision in a larger business is spending the company's money, not his own.
Not true. Ultiamtely the top of any business, large or small decides what everyone is going to make. Middle managers have some leeway of course, but if they start over compensating beyond what the market will allow or is reasonable for that individual, you can bet he's going to hear about it from someone above him. Plus, the person making the decision knows his salary is also dependent on what is coming in.