Are Government Workers Overpaid?

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THE STASH OCTOBER 12, 2009

Are Government Workers Overpaid?

Henry Blodget passes along this startling statistic:

The average federal worker makes $75,419 a year, while the average in the private sector is $39,751.

Why is that, exactly?  Is it because Federal workers are 80% better than private-sector workers?

And remind us again why, in the interest of cutting the deficit, the government shouldn't just slash 20% of its budget across the board?

Why indeed.

The only problem is that this figure is wildly inaccurate. It comes from a newsletter by investment personality John Mauldin, who doesn't say where or how he got it.

I assume Mauldin took the average pay for all private sector jobs and compared it with the average pay for all government sector jobs. But this isn't an apples-to-apples comparison. The pool of jobs in the two sectors is likely to be very different.

So, using data from the National Compensation Survey, I matched 588 common jobs in the private and public sectors. This chart looks at how the pay differential between the two sectors changes as we move up the pay scale in the private sector:

Two things should be apparent: Gov't employees have higher compensation at lower-paying jobs, and the reverse is true at higher-paying ones.

Overall, the average pay for a government employee is $49,479 while for a private sector worker it's $40,996. That's a 20% difference, not 80%.

Does this mean that we should cut the pay of the average public employee by 20%? (A back-of-the-envelope calculation puts the cost savings from this at $94 billion.)

I don't think so. One reason: By choosing to work in the public sector, a person pretty much gives up the option of having a high or very high salary, so the pay differential may compensate for that. Are there other reasons?

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posted in: the stash, economy, business, labor, law, henry blodget, john mauldin, private

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