iB::Topic::Inflated Federal Pay

Abstract: Salaries and benefits—for identical jobs—are 30 percent to 40 percent higher in the federal government than in the private sector. Claims that this dramatic discrepancy in compensation is warranted because of government workers’ high skills are unjustified, as this study shows. Equally unjustified is the fact that federal workers can rarely be fired, no matter how poor their job performance. Congress should align federal salaries and benefits with market rates—a simple, and fair, move that could save taxpayers nearly $47 billion in 2011. Heritage Foundation labor policy analyst James Sherk provides detailed data on why Congress should not overtax all Americans to overpay the privileged workers in the civil service.

Many news organizations have reported that the average federal employee earns more than the average private-sector worker.[1] Is higher federal pay justified given that the federal government employs a more skilled workforce than the private sector? Detailed analysis shows that the size of the wage discrepancies is not warranted:

The federal pay system gives the average federal employee hourly cash earnings 22 percent above the average private worker’s, controlling for observable skills and characteristics.
Including non-cash benefits adds to this disparity. The average private-sector employer pays $9,882 per employee in annual benefits, while the federal government pays an average of $32,115 per employee.
Overall, controlling for other factors, federal employees earn approximately 30 percent to 40 percent more in total compensation (wages and benefits) than comparable private-sector workers.
Federal employees enjoy job security irrespective of the state of the economy. Since the recession began, federal employment has risen by 240,000—12 percent. The unemployment rate for federal employees has only slightly risen from 2.0 percent to 2.9 percent between 2007 and 2009.
Federal employees demonstrate with their actions that they receive better compensation in the public sector than in the private sector: They quit their jobs at one-third the rate of the private employees.
Bringing federal compensation in line with private-sector compensation would save taxpayers approximately $47 billion in 2011.
Of course, these averages mask large differences in pay across occupations and skill levels. Many federal employees in highly skilled occupations receive market wages. However, semi-skilled federal workers earn substantially more than they would in the private sector. Congress should not cut federal pay across the board—this would unfairly penalize the federal workers who earn market wages.

Instead, Congress should implement a pay-for-performance system with pay bands based on market signals of labor demand, expand the contracting of federal work to private companies, reduce the generosity of federal benefits, and end the near-absolute job security for underperforming federal workers. Doing so would not solve the country’s fiscal problems, but would be a solid—and fair—step toward a more responsible fiscal policy. The federal government should not overtax the general public to provide significantly above-average pay and benefits to those who work in the civil service.