It’s Official: Government Employees Are Paid More

Controlling for everything else, a government employee can expect to make 12% more than a private employee. This shouldn’t be a surprise, since private firms face a profit constraint: if they pay more than employees are worth, they go out of business. Government can always foist extra costs on the taxpayer, who doesn’t have much recourse.

HT: Hit & Run

8 thoughts on “It’s Official: Government Employees Are Paid More

  1. [[Let me explain that. So let’s say a public and private sector employer puts $5,000 toward pensions for each employee. In the private sector that goes into 401(k) and an individual can either get a low risk/low benefits return by investing in government bonds, or higher expected return with a larger risk. In the public sector, the government promises high return and takes all risk. So a public sector worker with same amount of money going into pensions, and higher benefits, but less risk. That’s how a public sector employee can get benefits twice as high for each dollar of contribution as a private sector worker. ]]

    this is a half truth depending on your timing. the very reason i don’t contribute to a pension in favor of a 401(k) is because i can fairly easily beat that index and adjust for inflation.

    so if you measure up until march of 2009, a pension probably outperforms your stock. if you measure up until march of 2000? your stock probably outperforms your pension.

    the argument this article seems to make is that government has lower standards than everyone else (if you apply the person, rather than the job, that’s the logical conclusion).

  2. Bill – There certainly seems to be much more “slack” in the public sector. My wife worked for the Post Office as an admin assistant some years ago. She hated the job, because she had nothing to do. They had a janitor and stock clerks who just played cards all day. Anecdotal, yes, but I don’t think anyone thinks that government employees, apart perhaps from some department heads, work harder than their private sector counterparts.

  3. I’m thinking less of how hard they work than of the kinds of jobs they do. Is there a government equivalent of the minimum wage teenage fast food worker?

  4. Well, as the interview notes, comparing like job to like job doesn’t make sense, because in the public sector employees are promoted faster. Instead, they use a typical wage regression in which your wage is modeled as a function of your age, race, gender, firm size, marital status, place of residence, etc., as well as whether you are a federal employee or not. Being a federal employee gives you a 12% pay bonus. Now, there is also a study, using the same methodology, showing that state and local workers are paid 11% less than private sector workers. However, it appears that once you take unfunded benefits into account, state & local workers may also earn more than private sector workers:
    http://www.american.com/archive/2010/june-2010/are-government-workers-underpaid-no

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