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  • Do Government Workers Make More than Private Sector Workers?

    The Heritage Foundation has posted a new working paper that considers whether public workers in California are overpaid compared to their private sector counterparts. The paper’s findings are summarized today in a Wall Street Journal op-ed, coauthored by myself and AEI’s Andrew Biggs. We argue that previous public-private comparisons at the state level have undercounted important fringe benefits. While existing studies claim that pay is roughly comparable between the sectors, we find that California workers could be overpaid by as much as 30 percent. The working paper has all the gory details, including how we quantified the value of job security. Comments are welcome.

    The paper comes at an important time, when even the political bloggers have been debating the statistical nuances of pay comparisons. Over at NRO’s The Corner, Jim Manzi critiqued a pay comparison published by the Economic Policy Institute:

    …Consider Bob and Joe, two hypothetical non-disabled white males, each of whom went to work at Kohl’s Wisconsin headquarters in the summer of 2000, immediately after graduating from the University of Wisconsin. They have both remained there ever since, and each works about 50 hours per week. Bob makes $65,000 per year, and Joe makes $62,000 per year. Could you conclude that Joe is undercompensated versus Bob?

    Manzi is referring to “the human capital model,” which holds that workers are paid according to their skills and personal characteristics, like education and experience. Most scholars—including Andrew, myself, and Heritage’s James Sherk—use it to compare the wages of the public and private sectors. If the public sector still earns more than the private after controlling for a variety of factors, then it is said to be “overpaid” in wages. But because we cannot control for everything, Manzi is saying, the technique is not very useful.

    His critique is reasonable enough, but overwrought. The human capital model has been around for three decades, and it is unlikely that economists have failed to uncover important variables that would drastically change its results. Nevertheless, there are other techniques that address most of Manzi’s concerns. An upcoming Heritage Foundation report uses a “fixed effects” approach, which follows the same people over time as they switch between the private and federal sectors. By looking at how the same person’s wage changes when he moves between sectors, a lot of unobservable traits—intelligence, extroversion, etc.—are accounted for.

    In order to capture fringe benefits as well as wages, economists have also used quit rates and job queues. If public workers quit less often than private workers, we can infer (with some qualifications, of course) that there are not better options available to them. Similarly, if many more applicants apply for government jobs than there are positions—creating a “queue”—then we know that government jobs are highly desirable. Of course no methodology is perfect, but the scholarly literature can tell us a lot about pay comparisons. Andrew and I discussed this work in detail in a recent Weekly Standard article.

    Posted in Economics [slideshow_deploy]

    6 Responses to Do Government Workers Make More than Private Sector Workers?

    1. Jordan S. Terry says:

      Another issue with the EPI report: http://www.epi.org/pages/board/

      The Board of the Economic Policy Institute is a who's-who of Union and employee-rights leaders, with maybe 1 member who could be said to possibly represent investors/corporations.

      Their analysis is no where close to unbiased, quite the contrary.

    2. Lorita Goza, Oklahom says:

      Husband retired from 30 years with gov job. No higher education, no skills, started at the very bottom in 1962. We were on poverty wages for the 1st 17 years, but benefits were marvelous. Good Health coverage and many holidays and raises that were actually an increase in spendable income, sometimes. To survive meant wife had to work. Retirement is the best we have seen for people in our category of education, no skills and starting from the bottom. Now we accept the fact that we will probably lose that and we understand why. We have expectations of living a lot longer than the design was for. Still, working at a job long term with good benefits was unique for the last 15 years.

    3. George Colgrove, VA says:

      This is how I feel about congress and the entire federal workforce:

      I am a parent and had to several nights tell my boys to settle down at night. You know, they like to wrestle or play with toys or whatever. As a parent, I would have to say, “If you do not quiet down I will come up there” and the like.

      Well, we have told the feds to stop spending. Yet we hear that they are continuing spending. We say, “if you don’t stop spending, we will take your toys away (get them out of office.)” Do they learn – NO! They continue to spend. After several warnings, we take away their toys by getting rid of a bunch. However, after we settle back down stairs, what do we hear is happening up in the kid’s room? MORE SPENDING!

      Well, where I am now is I feel I have to go up there and give them the preverbal spanking. These are a 2.7 million strong army of self-serving feds at all levels. They know nothing but how to lie and obfuscate to they can spend. They are kids without parents – and now that the parents are starting to discipline, all they can do is rebel against us. It is as if these kids have the matches, and they obviously hate us and I feel they will burn down the house if that means they can get their way.

      What this 2.7 million strong group of ignorant people don’t seem to realize is that they are hurting themselves – their kids – their grandkids for their greedy needs. I guess when you are taking well over a $100 grand in compensation a year it is hard to see what you are doing. But as it can be seen in Wisconsin, they are the last people to accept the fix. I am truly fearful of this bunch – they truly know not what they do!

    4. Jordan S. Terry says:

      @George

      I think they actually know what they're doing (at least at a high level) but they don't have the backbone or integrity to put a stop to it, out of fear that doing the right thing (or the less bad thing) will find them out of a job.

      Without term limits for legislators (and amazingly high job security for many other Govt employees), the goal is just to stay in office, maybe climb the ladder, and enjoy the security and benefits. The ambitious ones put in their time then jump to the private sector once they've made a big enough name for themselves and get paid more as lobbyists, consultants, etc.

      There's some good people in government, but alas, the bad ones apparently have much more power/influence…

    5. Richard_FL says:

      George…………..I agree 100% with what you stated with one exception, "……….they truly know not what they do!"

      They know exactly what they are doing and have been schooled for many decades on how to take advantage of the "public" system. It is with total disregard and malice that they continue to "work" at the taxpayers expense. So hopefully the events of Wisconsin and elsewhere are the start of the dismantlying of this obvious and intentional abuse of the union rule in this country.

      It will be a long and difficult struggle but one us taxpayers should be glad to take on.

      Best regards………………now I have some letters to write to my elected officials to insist they take note and start with the cuts!!!

    6. Pingback: All Your Best Blog Posts On That Economic Policy Institute’s Study | Around The Sphere

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