Federal employee vs. private employee compensation

TheDreamsof[1]

The average compensation for federal (civilian) employees in 2000 was 66% more than the compensation for employees of private industry. Nine years later they make twice as much.

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9 thoughts on “Federal employee vs. private employee compensation

  1. Been awhile since I have been here, but not because of a lack of relevance on your part obviously. I show up and here is something right off the bat that ties into some thoughts that I have about the health care fiasco that is playing out in DC currently. Hopefully I will get to blogging about things I into in that direction shortly but in the meantime KUDOS to you for pointing out such things!

  2. It’s a difference of about 2.5% per year, which doesn’t sound so dramatic.

    More importantly, how meaningful can a comparison be between the private sector, with a very large number of low-wage/low-benefits unskilled jobs, and the govt sector? Higher-skilled jobs tend to get good benefits in the govt or private sector. And low-end wages are more prone to stagnation as well. And the cost of health benefits has increased faster than inflation. So doesn’t this chart just reflect what you’d expect from the very different demographics of the two groups being averaged?

    If the point is to compare public vs govt compensation, a fair comparison would be a category-by-category comparison, engineers to engineers, lawyers to lawyers, middle managers to middle managers, and so on. I don’t think you’ll find that sort of comparison supporting what the cato institute is trying get out of this data, but I’d be interested in that kind of analysis if anyone finds it.

    For the comparison given here, if the idea is that the two lines should be closer together how could that be accomplished? Making the demographics more similar would mean having the govt hire large numbers of low-skill workers, or having large numbers of low-skill jobs be lost in the private sector. Presumably nobody wants that.

    If the demographics don’t change substantially and you want the averages to look the same, you either need to greatly increase the compensation for unskilled jobs in the private sector, or greatly decrease the compensation for skilled jobs in the govt sector. Lefties would like the former. To make a case for the latter being feasible, you’d again have to go to a category-by-category comparison.

    If I’ve missed the point of what this comparison of averages is supposed to demonstrate, please let me know.

  3. dj,

    It’s a difference of about 2.5% per year, which doesn’t sound so dramatic.

    It’s a trend that, if unchecked, would lead to government employees being paid three times as much in fifteen more years, and four times as much in thirty years. If the difference becomes unacceptable at some point, then the trend is unacceptable now.

    So doesn’t this chart just reflect what you’d expect from the very different demographics of the two groups being averaged?

    To me what it shows is that government employee compensation, not established by market forces but simply dictated, is increasing at a faster rate than the improving state of the economy would justify, assuming that private industry reflects that.

    As to the absolute numbers involved, I don’t think that the point is to establish that the government will pay a particular worker twice as much as the private sector. It’s just a reminder that the average federal government employee made $120,000 in 2008. Given what I know about what government does and what it takes to do it, I think that is far too much; some will agree, some won’t.

  4. But if private sector compensatoin is roughly the same or greater than for comparable jobs in govt, then wouldn’t that argue for the opposite conclusion? Namely, that government compensation for the kinds of jobs the government actually pays for also tracks what the economy justifies. And isn’t that the meaningful comparison to make?

    FWIW, any time I’ve been on the job market, starting with entry level CS jobs in 1981, government jobs never paid as much as private sector jobs, and the difference was often very large. Even worse for state govt jobs. The jobs all had great health care and some kind of retirement plan and so on. The way people in my field justify taking a govt job is most often that the job security makes up for the lost wages.

    It’s just a reminder that the average federal government employee made $120,000 in 2008.

    But what do you compare it to? Pick a govt job of the sort that has $120k in total compensation, and look at what the same type of job would get in the private sector. Isn’t that the only sort of comparison that would be meaningful?

    Unless, perhaps, you’re saying that govt hiring should be predominantly unskilled, low-wage workers, but I doubt that’s where you’d be going with this. The smaller govt gets, the more I’d expect the remaining jobs to be highly-skilled jobs. And to get good people, they’d have to have compensation comparable to the private sector, but assume it’s never more than for a comparable job in the private sector.

    And so the chart is going to look the same, maybe worse. The private sector will have a lower average because of the much larger percentage of unskilled workers. The rate of growth will be lower, due to low-end wage stagnation (assuming it’s left to market forces) and due to private health insurance costs going up faster than inflation (assuming we’re not talking about some alternate universe in which that’s not the case). The more govt hiring is skewed toward highly-skilled workers, so that the private sector has a much larger percentage of low-wage/low-benefits workers, the greater the divergence is going to be.

    Or to put it another way, if someone generated the same sort of graph for every country in the world, what sorts of countries would not show that divergence? A country like China maybe, where the govt has large numbers of workers in low-skill jobs, so the public and private sectors might have more comparable demographics. Maybe a country like France or Sweden, where health insurance is generally not part of anyone’s compensation package because everyone has it through nationalized health care.

    But is there any way at all to avoid that divergence, for large government or small, without heading in one of those directions, either somehow giving comparable benefit packages to every worker, or expanding govt to include a comparable percentage of unskilled workers (at private sector wages, without benefits) so that it looks more like the private sector?

  5. dj,

    I had a much simpler conversation with this graph than you are, and you’ll have to decide whether I slipped over the edge into simple-mindedness. Here’s how the conversation went:

    Did you know that in 2000 the average employee in private industry made $45,722?

    I can believe that. In fact, I knew people making about that much, and it seems right that they should be right in the middle of the range.

    Did you know that in 2000 the average employee in the federal government made $76,187, or about 66% more?

    Really? Perhaps he’s that much more expensive, but given what I know about what the government does, it’s hard to believe that the worker in the middle of the pack is so much more valuable than the Mr. Average I know in private industry.

    Did you know that in 2008, the average employee in private industry made $59,909, or about 30% more than he made in 2000?

    OK, that’s not quite as much of a raise as I would have expected given the booming economy, but I know people making that much now and they still strike me as average.

    Did you know that in 2008 the average employee in the federal government made $119,982, or about 56% more than he made in 2000?

    Nearly twice the increase in compensation as in private industry? And Mr. Average in government is now twice as expensive as Mr. Average in private industry? He’s certainly not twice as valuable, at least in the government I’ve come to know.

  6. I wouldn’t say or think “simple mindedness.” (Some day maybe I’ll send you an email listing some of the ways your site has challenged my thinking over the years. I was thinking of doing just that not too long ago, in fact, when I finished one book you had mentioned and started another. I say this just in case anything I had said so far sounded like I might be attributing anything to simple mindedness.)

    I agree that the intuitive argument is very compelling, intuitively. But I still think it’s statistically unsound.

    For one thing, “Mr Average” in the private sector doesn’t look anything like “Mr Average” in the public sector, because of the number of low-wage/low-benefits jobs in retail, service jobs, etc. It’s like comparing compensation trends for lawyers in government vs. mechanics in the private sector.

    But worse than that, there’s no reason to expect that a “Mr. Average” in the data set from 2000 would also be a “Mr. Average” in the data set from 2008. A lot of people at the low end of the private sector data wouldn’t even have kept up with inflation, and have few if any benefits. So someone who started out at the Mr. Average point at the beginning is going to be above the Mr. Average point at the end. When you average in the low-wage/low-benefit jobs you end up changing job categories for Mr Average from one end to the other. It’s not the same kind of job, so it’s not the same person, so it’s not a meaningful comparison.

    I looked for the BLS data mentioned in the Cato reports, but the didn’t give enough of a citation to follow up. I found a bit of other relevant data, broken down by categories (and arguing for the opposite conclusion from the Cato report), but it was leaving out benefits (which may not be *too* unfair for jobs that have good benefits in both public and govt jobs). That’s where I gave up.

  7. Where do I apply

    Right here: http://jobsearch.usajobs.gov/

    But if you’re looking for a minimum/low wage job, you’ll most likely come up empty. Those sorts of jobs are predominantly in private industry. (Which is actually a good thing, unless you think the govt should nationalize the retail and food industries perhaps.)

    If you are highly skilled and looking for a job in a competitive category, you’ll most likely be giving up a substantial chunk of salary in exchange for better job security and fewer hours expected. Don’t be surprised if you find yourself working with unmotivated co-workers who take advantage of any work ethic you might have. (My wife has more than a few stories along those lines.) And chances are good that the work will be less challenging than what you could find in the private sector. Plus, you won’t be able to keep up with the advances in salary you could have had in the private sector unless you can move up to higher-paying job categories faster in a govt job than you could have in the private sector, which is very unlikely assuming you’re at least moderately competent and hard-working. And for all of this your health insurance and retirement plan will only be slightly better, if that.

    In between the unskilled and highly-skilled levels, you might find jobs that will give you better benefits at somewhat lower pay. But most likely a higher level of mind-numbing drudgery, and again, you’ll do better in the long run in the private sector if you’re good at your job.

    Good luck! :)

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