NCPA - National Center for Policy Analysis


July 7, 2010

Pay cuts, layoffs and the highest unemployment rates in decades have reignited a debate over the relative treatment of public and private workers, say Andrew G. Biggs, a resident scholar at the American Enterprise Institute, and Jason Richwine, a senior policy analyst at the Heritage Foundation. 

USA Today reported in March that federal workers earn substantially higher wages than private sector employees who work the same types of jobs.  White House budget chief Peter Orszag responded that these pay differences merely reflect the superior skills of federal workers, not government largess.  

Nevertheless, salaries are only one part of total compensation.  Government employees may also receive more generous health and pension benefits than Americans working for private enterprise.  So are federal employees overpaid?  Data from the March Current Population Survey (CPS) suggest they are: 

  • At first glance, the CPS data show that the average hourly wage for a federal worker is about 48 percent higher than a private worker's.
  • Yet because federal employees tend to be more educated and experienced than their private counterparts, one has to control for these skill differences.
  • This reduces the public-private salary gap -- but it does not eliminate it; the federal wage premium for workers who have the same education and experience stands at 24 percent, still a windfall for public employees. 

Even using all the standard controls -- including race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more -- the federal wage premium does not disappear.  It stubbornly hovers around 12 percent, meaning private employees must work 13 and a half months to earn what comparable federal workers make in 12. 

A federal pay premium is unfair both to private workers, who receive less than their government peers, and to taxpayers who must cover the difference.  Given our 2.7 million-strong federal work force, the government effectively overbills Americans by almost $40 billion every year just on labor costs, say Biggs and Richwine. 

Source: Andrew G. Biggs and Jason Richwine, "The Government Pay Bonus," Wall Street Journal, July 6, 2010. 

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