Two Different Worlds: Public vs. Private Sector Compensation | Citizens Against Government Waste

Two Different Worlds: Public vs. Private Sector Compensation

The WasteWatcher

Despite the popular belief that federal employees are underpaid public servants, the data tells a very different story. When all of the factors that affect compensation are accounted for, there is significant evidence that federal employees make considerably more than their private sector counterparts.

The Federal Salary Council (FSC), an advisory body made up of academics and public employee union leaders, claims that federal employees are underpaid by 35 percent compared to their private-sector counterparts. However, FSC’s criteria does not account for many important factors. According to a November 18, 2012 op-ed in The Washington Post, “…the pay agent doesn’t consider fringe benefits, even though benefits for federal workers are famously generous. In addition to a 401(k)-type pension with a handsome employer match, federal workers receive a traditional defined-benefit pension — for which they contribute less than 1 percent of salary — as well as retiree health coverage.”

The gaps in the FSC’s analysis are exposed by a January 30, 2012 Congressional Budget Office (CBO) report. The CBO compared federal civilian employees with private sector employees who had comparable levels of education, years of work experience, occupations, geographic locations, and demographic characteristics; it found, among other things, that, “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 findings of the CBO study are consistent with most other outside studies, which show that federal employees receive greater total benefits than private-sector workers.

The phenomenon of government workers receiving higher wages is not restricted to the federal level. On September 27, 2012, Citizens Against Government Waste released a report entitled, “Public Servants or Privileged Class: How State Government Employees are Paid.” The report analyzed state government employee wages and benefits in all 50 states and, for the first time, provided a thorough comparison of compensation for public and private sector workers in the same job categories, from architecture and engineering to transportation.

The report found that state governments pay on average 6.2 percent more per hour in wages and benefits, including pension benefits, than the private sector for the 22 major occupational categories that exist in both sectors. Additionally, the report found that no state government pays its employees on par or below what the private sector pays; that the largest percentage difference in pay between the public and private sector is 40 percent; and that the highest difference in pay is $61 an hour. This disproportionately generous public sector compensation is a major driver of unfunded state and municipal pension liabilities across the country, which have been accurately described by pundits and experts of all political stripes as looming financial crises.

Total compensation paid to federal civilian workers totaled $271 billion in 2011, which means that regardless of whether or not the president decides extends the freeze on cost-of-living increases for federal workers, overall federal compensation will have significant budgetary ramifications in the decades to come. At a time when the national debt has grown to more than $16.3 trillion, Congress cannot afford to ignore the conclusions of the studies like the CBO report, which concludes that total compensation is 16 percent higher for federal than private sector workers.

It is clear that the underlying assumptions that the FSC uses to calculate its compensation figures are incomplete and therefore the group’s findings are inaccurate. To avoid facing any misconceptions about compensation in the future, the FSC should correct the flawed methodology it uses to calculate federal versus private sector employee pay.

  -- P.J. Austin