Tuesday, August 22, 2006

Why do government workers cost so much? 

Paul Jacob wonders:

Average compensation for federal civilian workers last year came to $106,579 � which Chris Edwards of the Cato Institute notes is "exactly twice the average compensation paid in the U.S. private sector." Throw out the benefits and the difference is less, but still a whopping 62 percent more for the federal worker.

Of course, past figures used to bolster up the "underpaid civil servant" notion ignore benefits and consider just the nominal wage rate. But today's 62 percent difference is hard to ignore, isn't it?

But face it: nominal wages aren't real wages; for a true comparison we must add on all the benefits, as Edwards does: "Federal workers receive generous health benefits during work and retirement, a pension plan with inflation protection, a retirement savings plan with generous matching contributions, large disability benefits, and union protections."

Here's the Cato study Jacob cites. When I read things like this I usually think they are too pat an answer to be true. I think this one is as well. Gary Becker points out that quit rates for lower-level government jobs are well below quit rates in the private sector.

Federal employees at lower level jobs may not make more than their civilian counterparts, but their economic situation is quite good when all other characteristics are taken into account. Government workers at these levels have great job security since they cannot be fired after a short probationary period, except for the grossest forms of misbehavior, ... In addition, they get many holidays, good vacations, generous pensions and health benefits, and are usually not under much pressure at work. The full set of characteristics offered to these federal employees is very attractive, which is why lower level jobs attract many applicants, and the jobs must be rationed through tests and in other ways.

In general, according to this BLS data, tenure on federal government jobs is almost three times that of private sector jobs. State and local government job tenure are also well above private sector rates. Becker and Richard Posner both point out that this is for the lower level jobs -- higher level federal employment tends to be at salaries well below those attainable in the private sector. Thus for example the high turnover at the Dept. of Homeland Security, where maybe you'd be willing to spend a few more dollars to keep the good upper-echelon people (I assume there are some.)

If there are workers with longer tenure in government, and one is rewarded for years of service with higher pay, it makes perfect sense that government workers would be seen to have higher pay. Jacob and Edwards would bolster their arguments if they could compare worker compensation for employees with the same years of service on a private and federal job.