NCPA - National Center for Policy Analysis

Pay for Federal Employees Outstrips Private-Sector Workers

February 21, 2011

Federal employees receive a substantial wage premium by comparison with similar private workers, according to Andrew G. Biggs, a resident scholar at the American Enterprise Institute, and Jason Richwine, a senior policy analyst at the Heritage Foundation.

The standard approach to comparing the salaries of different groups is to employ the "human capital model," which assumes that workers are paid according to their skills and personal characteristics.  If any group differences in wages remain after controlling for age, education, experience, race, gender, marital status, immigration status, state of residence and so on, then one group is said to enjoy a wage premium over the others. 

  • Economists using this approach find that federal workers generally earn wages 10 percent to 20 percent higher than comparable private sector workers.
  • When Biggs and Richwine ran a similar analysis with 2009 wage data from the Current Population Survey (CPS), the result was a 12 percent premium.
  • James Sherk of the Heritage Foundation found that the federal premium today could be as much as 22 percent, depending on the specific control variables employed.
  • In general, the federal pay premium is very large for lower- and middle-skilled employees, and shrinks for the best qualified federal workers.

Taxpayers should recognize that bureaucratic inefficiencies like excessive pay are part and parcel of large government.  Reform of the pay system is important and necessary, but ultimately the best means of reducing excessive federal paychecks is to reduce the size of the federal government, say Biggs and Richwine.

Source: Andrew G. Biggs and Jason Richwine, "Yes, They're Overpaid," Weekly Standard, February 14, 2011.

For text:


Browse more articles on Economic Issues