Are Federal Workers Overpaid?

by Danny Vinik | February 25, 2014

Next month, when President Barack Obama releases his budget proposal for the next fiscal year, he will call for increasing pay for federal workers by 1 percent. If enacted, it would be the second consecutive raise of that value, after three years of no raises at all—and it may set off an intense, if familiar, fight. Conservatives tend to think government workers already make too much money—that they are mooching off the taxpayers. Liberals tend to side with public employees unions, who think their members could use a raise.

A version of this debate played out just a few months ago, in negotiations over the Murray-Ryan budget that's now in effect for 2014. During those discussions, both sides agreed to reduce federal worker pay indirectly, by asking future federal employees to contribute more to their pensions. The debate was over the amounts and, more or less, the Democrats won. The new contribution was about half what Republicans had sought—and very close to the Democratic demand. Republicans haven't yet reacted to Obama's new proposal. But if it's bound to be unpopular on the right, it's not exactly winning plaudits on the left. David Cox, president of the American Federation of Government Employees National President David Cox called it “pitiful.” 

Is he right? Or are federal workers actually overpaid? The answer, as usual, is complicated and a bit subjective. 

As of January 2012, there were 2.3 million federal workers (excluding military personnel and self-financing government enterprises such as the Post Office), equal to 1.7 percent of the U.S. workforce. They work in more than 100 agencies in over 700 different occupations. Here are the branches and departments where they work:

CBO Federal Worker Departments
Congressional Budget Office

In 2010, the average federal worker made $32.30 an hour. That certainly sounds like a lot, but it comes with a few caveats. Federal workers are also better educated on average than their private sector counterparts. 52 percent have a Bachelor’s degree or higher, compared to just 32 percent of private sector workers. On average, they are four years older as well (45 vs. 41). Older, better educated workers are bound to have incomes above the national average.

So what happens when you adjust for those facts? The Congressional Budget Office did just that in 2012 (along with controlling for a few other factors such as geography and employer size) and concluded that relative pay—that is, whether federal workers do better or worse than equivalent private sector counterparts—depends heavily on educational attainment. In general, if you have an advanced education, you'll likely to make more working for a private company than you would if worked for the government. But if you have less education, and end up in a lower-paying job, you're going to take home more pay as a federal employee than you would working for a business in the private sector. That makes sense—the people with the most skills have a lot more leverage to demand high salaries from private employers, while lesser skilled workers do better when they have union representation, which these days is more common in the government.

The story on benefits—mainly pensions and health insurance—was different. For those forms of compensation, the CBO found that workers at all education levels received more from the government than from private sector employers. The CBO report came with plenty of caveats, as usual. The agency noted that it couldn't measure "work effort," for example, and that federal employees often have greater job security, which may "decrease the compensation that the federal government needs to offer." (The CBO report also came before the recent budget deal—the one that requires them to pay more for their pensions.) But it produced a pretty clear bottom line: Overall, the CBO said, “the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector.”

Here’s the full comparison:

Federal Worker Pay
Congressional Budget Office

Immediately after the CBO released its report in 2012, federal union representatives pushed back. They argued that a different report, from the Bureau of Labor Statistics, was more reliable. The most recent BLS report compared worker pay in similar jobs in certain geographic areas and found that federal workers had incomes 35 lower than their private sector counterparts. However, that study excluded benefits altogether. And others have argued that the data that BLS uses, which it is required by law to use, is not suited for comparing wages between federal and private sector workers.

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