Compensation: Federal Employees vs. Private-Sector Employees

Public-sector employees and their level of compensation tend to become political footballs to be kicked around by politicians who feel free to assume facts rather than to do the hard work of actually studying data. The general consensus, as promulgated by conservative politicians and their conservative media overlords, is that public employees are much better paid than their public-sector counterparts. This contention is always accompanied by the conclusion that they are lazy, pampered, and nonproductive. In response to such claims, the Congressional Budget Office (CBO) tried its best to make the federal vs. private sector comparison.

In January, 2012, the CBO issued its report. It includes a wealth of interesting data. Consider some characteristics of the federal work force.

"The federal government employs 2.3 million civilian workers, or 1.7 percent of the U.S. workforce, in over 700 occupations and spent about $200 billion in fiscal year 2011 to compensate them."

The types of work performed by civilian federal employees differ considerably from that in the public sector.

"For example, thirty-three percent of federal employees work in professional occupations, such as the sciences or engineering, compared with only 18 percent of private-sector employees; in contrast, 26 percent of private-sector employees work in occupations such as retail sales, production, or construction, compared with only 7 percent of federal employees. Professional occupations generally require more formal training or experience than do the occupations more common in the private sector."

"Partly because of that difference, the average age of federal employees is four years higher than that of private-sector employees (45 versus 41). The greater concentration of federal workers in professional occupations also means that they are more likely to have a bachelor’s degree: 51 percent of the federal workforce has at least that much education, compared with 31 percent of the private-sector workforce. Likewise, 21 percent of federal employees have a master’s, professional, or doctoral degree, compared with 9 percent of private-sector employees."

Given these differences, a direct comparison is extremely difficult and the results will be uncertain.

"To account for such differences, CBO has used data from 2005 through 2010 reported by a sample of households and employers to estimate differences in the cost of wages and benefits for federal employees and private-sector employees with a similar set of observable characteristics. CBO sought to account for differences in individuals’ level of education, years of work experience, occupation, employer’s size, geographic location (region of the country and urban or rural location), and various demographic characteristics (age, sex, race, ethnicity, marital, status, immigration status, and citizenship)."

The CBO believes it is able to draw some general conclusion. These are summarized in the following table.

The report provides this summary on the issue of direct wages.

"After accounting for the differences in job-related and demographic characteristics described above, workers whose highest level of education was a bachelor’s degree earned roughly the same hourly wages, on average, in both the federal government and the private sector. However, federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector, whereas federal workers with a professional degree or doctorate earned about 23 percent less, on average, than their private-sector counterparts."

"Overall, the federal government paid 2 percent more in total wages than it would have if average wages had been comparable with those in the private sector, after accounting for certain observable characteristics of workers."

Federal workers had a clear advantage over most of their public-sector counterparts. A large factor in the comparison is the remaining defined benefit pension plans that are still available to many federal employees.

"Average benefits for federal employees were 72 percent higher for those with no more than a high school education and were 46 percent higher for those with just a bachelor’s degree. Among employees with a doctorate or professional degree, by contrast, average benefits were about the same in the two sectors."

"On average for workers at all levels of education, the cost of hourly benefits was 48 percent higher for federal civilian employees than for private-sector employees with certain similar observable characteristics, CBO estimates."

Total compensation will be the sum of wages and benefits.

"Among employees with a high school diploma or less education, total compensation (wages and benefits) costs averaged 36 percent more in the federal sector. Among people whose education culminated in a bachelor’s degree, the cost of total compensation averaged 15 percent more for federal workers than for similar workers in the private sector. By contrast, among people with a professional degree or doctorate, total compensation costs were 18 percent lower for federal employees, than for similar private-sector employees, on average."

"Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers."

The CBO provides this overall assessment which, presumably, is meant to convey the uncertainty involved in these comparisons, as well as the difficulty in drawing conclusions based on averages of highly dispersed numbers.

"However, even within groups of workers who have similar characteristics, the average differences in compensation between federal and private-sector employees do not indicate whether particular federal employees would receive more or less compensation in the private sector."

If one takes the CBO numbers at face value, then there is little difference in terms of direct wages. Federal benefits do exceed those available in the public sector. This seems to be mainly attributed to the fact that the federal government is not allowed to discriminate against certain classes of employees and must provide benefits that can be considered comparable to all employees. The private sector apparently worries mainly about its highly-paid employees, and treats them quite well. In any event, there is no outrageous disparity in compensation, as had been claimed.

This report came out about seven months ago. I don’t remember these results receiving any media attention. Unfortunately, in public discourse, inconvenient facts are treated as if they do not exist.