February 2, 2012

CBO Dissects Earning Power of Government vs. Private Workers

Findings depend on education level, but smaller spread in public sector

One way presidential candidates have suggested to cut the federal deficit is by cutting the number of federal employees, saying that they are more highly paid than their private-sector counterparts. A recent study by the Congressional Budget Office shows that this is only partly true, and mostly at the lower, less-educated part of the spectrum. Not only that, but overall, the federal government demonstrates less of a spread from top to bottom than the private sector.

In a study called Comparing the Compensation of Federal and Private-Sector Employees, the CBO found that those without a college degree fared better as federal employees, since their pay was 36% higher than that of private-sector employees–particularly when it came to benefits. Those with advanced degrees such as doctorates, however, were generally better off in private industry, strictly from a monetary viewpoint–government pay was 18% lower than that of comparable individuals in the private sector.

For those in between those two classifications, it was not so easy to pin down the difference, after accounting for age, location, and other factors that could account for variations in pay. Overall, the CBO found that the federal government paid approximately 2% more overall in wages for its employees, taking into account the higher levels of pay for those at the lower end of the education spectrum and the lesser levels of pay for those with more specialized education.

One thing that remained constant was the higher cost of benefits in the public sector: employees of the government did far better than their private-sector counterparts when it came to that kind of compensation.

Those with only a high school diploma, for instance, had benefits that averaged 72% higher than for similar workers in the private sector. Those with bachelor's degrees had benefits 46% higher than those of private sector workers. However, those with professional or advanced degrees had benefits that were comparable to their colleagues in the private sector. Overall, the government paid 16% more in total compensation (including benefits) than the private sector.

In a blog post by Justin Falk of the CBO’s Microeconomic Studies Division, the most important factor cited in contributing to the differences between the two sectors in benefit cost is the defined-benefit pension plan that most federal employees still have access to; such plans are growing increasingly rare in the private sector.

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