Arnold Kling  

Recession? What Recession?

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The USA Today story on the increases in highly-paid Federal workers has been making the rounds. This quote in the story is inevitable:


Jessica Klement, government affairs director for the Federal Managers Association, says the federal workforce is highly paid because the government employs skilled people such as scientists, physicians and lawyers. She says federal employees make 26% less than private workers for comparable jobs.

Right. Does anybody believe this? Living in the Washington, DC area, I encounter a lot of a lot of government workers. I tend to let a lot of their liberal talking points roll off. But this one I refuse to allow to go unanswered. Whenever I hear this whine about being paid less than comparable workers in the private sector, I say, "So quit. Take a comparable job in the private sector, and stop whining."

Governments are losing money. They should be doing what private firms would do when they lose money--cutting the payroll. If you are worried about losing "jobs," then instead of laying off government workers, cut their pay.

Nick Gillespie adds,


Since June, the federal government has increased employment by almost 10 percent, while the private sector has cut employment by over 6 percent. And which sector do you figure was more padded to begin with?


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CATEGORIES: Fiscal Policy



COMMENTS (18 to date)
DBT writes:

Arnold,

You can take this to the data from the Bureau of Labor Statistics "Occupational Employment Statistics". Go here: http://www.bls.gov/oes/oes_dl.htm, download the Nationa Cross-Industry Estimates and the National 4-digit NAICS Industry Specific Estimates in excel format. The first file will give you mean, median and quartile wages for (almost) all occupations, and the second will give you the same information for each occupation, industry specific (i.e. the wages of a lawyer working for the federal government). Comparing NAICS 999100 (federal government) to the cross-industry wages would be interesting. This wouldn't cover intangibles or benefits but would be a reasonable comparison.

David writes:

It's the same here in Quebec. Unions say their salaries are 10% lower than the private sector. But the same study says that, when you include benefits, their wage is superior by 6%. And that doesn't include job security.

The Cupboard Is Bare writes:

Private industry is well aware of the work habits of government employees, and as a result, isn't too eager to hire them.

Tom West writes:

"So quit. Take a comparable job in the private sector, and stop whining."

Not much of a soft shoulder to cry on, are we? I thought complaining about your job is part of what has bound human beings together since there were jobs :-)

Do you advise anyone in a private sector job complaining about long hours and job insecurity to quit as well?

Personally, I have no trouble believing that gov't workers earning over $60K are probably paid less than their private enterprise counterparts. At least any time I've investigated the possibility, it just wasn't worth a significant salary drop.

(For better or worse, on the other side, low level gov't jobs are one of the few low-end jobs that still allow for a middle class existence.)

However, there are powerful attractive elements. For example, job security and a good pension.

You choose a job based on the elements you like, and then complain about the elements you don't. It's human nature.

Jim writes:

A lower wage would be pretty clear evidence that it's not a comparable job, if we were comparing two private sector jobs. Because we aren't, we can't even compare the jobs and the wages in any meaningful sense at all.

We can only compare the jobs in a purely technical sense, but this has nothing to do with the wage. It's the subjective valuation that consumers place on the final output that determines the value of the job, but this is unknowable in the absence of a market for the output. Without it there is no rational way to calculate the value of the job, much less compare it to another job.

To speak of government jobs being "comparable" to private sector jobs is simply nonsense.

Rolo Tomasi writes:

Jim,

You are right jobs between governments and private sector cannot be compared. I think that comparing the government expenditures to the rest of the components in GDP has this same problem too.

Ryan Vann writes:

I only agree with consumer valuation corresponding to pay in the abstract. In a pragmatic sense, wages are more linked more to specific duties within the entity's structure. In that regard, government and private sector jobs are definitely comparable, and it is no shock private sector pays more for the majority of positions (though probably not for low skilled work).

D.C area government workers are not indicative of overall national bureaucracy wages, as you begin talking about politicians and real power concentrations the closer you get to D.C.

That said, often ignored are stability and benefit packages when contrasting the two different groups. Controlling for that, you might see the wages even out.

David Zetland writes:

This is a very sensible question. I was asking myself the same yesterday while reading about "program cuts," etc. that did NOT include ANY staffing cuts. More people doing less stuff is NOT a formula for productivity.

DBT writes:

I just compared the files I linked above, using only the occupations that are released for federal executive branch employment (almost all agencies as I understand it). I took each occupation and calculated a weighted average of mean salaries (i.e. for overall economy, I took number of lawyers divided this by number of total workers, then multiplied by the mean salary) overall and workers in the federal government (for both, only using occupations that have significant, releasable employment in the federal government to control for occupational differences). I summed these weighted mean parts to get totals and found the following:
Weighted Average (total): $43,400.88
Weighted Average (gov): $68,671.84

This shows that correcting for occupational differences, federal workers still earn 58.23% more than workers overall. I don't want to say that this is a perfect comparison, and I could have done a step or two wrong, but I am confident that the quote by Ms. Klement is wrong. From the BLS data, I see that the jobs she mentioned, only computer scientists(~$5000 more), mathematical scientists (~$19,000 more) and lawyers (~$1000 more) make more overall than they do in the federal government (all other scientists [several types from political and social to animal and physical] in the data make more in federal government than elsewhere, as do physicians).

richard writes:

I am a fed so obviously my views are gonna be somewhat biased. I am under 30 and have been working in one of the more dysfunctional agencies in the government for the last four years. I have had offers from some of our contractors. They would have involved significant pay raises, typically a 20% premium. Two factors have prevented me from switching: 1. The work is boring-if I switched over in all likelihood I would be working under someone like me and would be the functional equivalent of a glorified temp updating documents and spreadsheets- you become the bitch in short; 2. I don't like sales and in the end most contractors that I know have to do some sales related activities- (most of it is the above board variety of going in to HQ on the weekend and working on a proposal but a some of it is a unseemly cubicle fishing expedition hitting up feds for information on competitors performance, badmouthing other competitors, trying to scout out which contracts are being let and what the QFR might look like in advance, pimping your employer, etc.).

If you had accountability in the government there would be a case for higher pay. Right now, though, there isn't a business case for raising federal workers pay (they forgo their cash compensation in favor of iron clad job security). Once you are in the government you have to work at getting fired. At most agencies I would bet that the vast majority of contracts being let are not to access some specialized skill but are being let to run and end around personnel regulations. With a contractor, when they are incompetent, you can go to the project manager and tell them to get rid of the person and bring someone in new. It gives you flexibility that you do not have if you staff the position with a Fed. That said, the flexibility comes at a significant cost.

I will give you an example, but really not that atypical at my agency. A buddy of mine started working at agency as me about the same time as I did. He come on through an accounting firm's public sector practice. His title was that of a "consultant". A 22 year old, fresh out of college, with no prior work history, "consulting". He basically did the work of a file clerk, simply, because that was the work his client wanted to be done. Boring, menial, stupid work, but he got it done. He brought home $50k, with benefits figure his total cost to the employer was $70k. The hourly billing rate for an entry level "consultant" on his contract- $112 per hour, $230k per annum. He gave his employer a glorious margin. There are tons like him throughout the agency. It doesn't matter if you are talking about Booz Allen, Grant Thornton, IBM, KPMG, Bearingpoint- you are talking about $100 per hour baseline hourly billing rate for a warm body. You can get 4 feds for that money. But again, what if they don't work out. that is the problem. If you could fire feds, you could justify the pay increases. Not in this economy but as a general proposition. You do want capable people running the bureaucracy. But in normal times, it is difficult to compete for them, instead, you get a disproportionate amount of deadwood.

On a side note, I wonder what would happen to the real estate market in d.c. if you made hiring and firing easier in the government and raised the pay of senior managers (I don't think early to mid career folks are underpaid in the govt- it's a good place to start but it top out much too low). The federal government is d.c. and as more and more of the work is being conducted via contract d.c. has become a lot wealthier as a result. You go from a workforce that is primarily on the G.S. schedule where a middle manager makes $115k to middle manager for somebody's public sector practice making $200k plus, or the wholly grail of contracting, the independent sub- who could make $400-$500k. As a result, in my lifetime, Washington has become a lot more affluent, and I don't think this a reflection of massive productivity gains but rather a paradigm shift where people have become a lot better at capturing taxpayer bounty. If there was less contracting I think a lot of money that has flowed into building McMansions and supporting luxury consumption in the area would evaporate.

dWj writes:

Huh. That doesn't even include "intangibles or benefits". Pensions and job security have been mentioned; I haven't noticed working hours, though I may have read over the comments too quickly. I know an SEC lawyer who took a pay cut to go there largely to have 40 hour work weeks.

Floccina writes:

Gov. jobs are very desirable because they offer hire date to grave benefits. Also many Gov. jobs are so lax they are like semi-retirement. I had a friend who worked for the post office, he liked to joke about it saying "I am under-worked and over-paid". My 2 brothers work for the federal government and it is fantastic deal if you can get one of those jobs. Fed gov. workers have no worries about down sizing or going out of business. They get a way better overall deal than most private sector employees, that is why Fed. Gov. jobs are often very hard to get.

Foobarista writes:

The simple fact that they're "hard to get" means they're overpaid. They should be paid market-clearing wages and benefits - any "premium" is the margin of overcompensation.

Jim writes:

Ryan

"I only agree with consumer valuation corresponding to pay in the abstract. In a pragmatic sense, wages are more linked more to specific duties within the entity's structure. In that regard, government and private sector jobs are definitely comparable, and it is no shock private sector pays more for the majority of positions (though probably not for low skilled work)."

Of course they may be similar or even identical in the purely technical sense of specific job duties, but this doesn't give us any basis to say that the work is comparable for the purpose of setting wages. This can only be so if the value of the work flows from the labor expended, but we know that this is false.

Where do we see the practice of linking wages to job descriptions? Mostly in the government's GS pay-grades or in union jobs, which are also shielded from market imputation of value by coercive labor laws, i.e. in precisely those situations where the true value of the work is obscured because the work is insulated from the market.

It is just because the true value of the work is unknowable that we see, in a pragmatic sense, the practice of setting wages according to specific job duties. But it also for this reason that, in an economic sense, no comparison can be made between such jobs and private sector jobs (or even other government jobs).

In private, non-union jobs, where the price system is able to function we can compare jobs in an economically meaningful way and use this as a a rational basis for action. When we do see two workers doing the same jobs for the same pay, it is solely because the value of the output is the same. If one of the workers produces greater value in the same job, competition among workers and employers will tend to adjust his wages to reflect the comparably greater value of his labor, unless ther is some other interference in the market.

We can never say the same for relative wages of government workers, which are fundamentally disconnected from the value of their output and instead set by arbitrary rules (prevailing wage, job descriptions) or political considerations.

George X writes:

Jim wrote:

Because we aren't, we can't even compare the jobs and the wages in any meaningful sense at all.

Take a government position: you can look at the jobs people had right before taking it, and right after leaving it. If enough of those are private-sector jobs, you can be sure they're at least somewhat similar to the government job in question.

Based on numerous interactions with government employees (two of whom raised me), they're trading off salary for (1) job security, (2) generous pension levels, including health care (from an entity that's not going belly-up any time soon), (3) the ability to retire at surprisingly early ages and still get a big chunk of that pension.

It's definitely for the relatively risk-averse (except, of course, for the police and firemen).

Peter writes:

""So quit. Take a comparable job in the private sector, and stop whining."

Ja I have the same feeling about all those overpaid professors that have PA's and TA's doing most of their work while they take long vacations and work partial years while being subsidized by the tax payer.

Def agree the first batch of government workers to get pay cuts and fired are our educators who can go find education jobs in the private sector at for profit schools.

Richard A. writes:

The private sector tends to try to pay the market clearing wage(mcw). Paying above the mcw pushes down the voluntary quit rate while paying below the mcw raises the quit rate.

It would be interesting to look at the voluntary quit rate of Federal workers occupation by occupation.

Jim writes:

George X:

"Take a government position: you can look at the jobs people had right before taking it, and right after leaving it. If enough of those are private-sector jobs, you can be sure they're at least somewhat similar to the government job in question."

No. You would still only be comparing the technical similarities of the jobs in question. The whole point of the comparison in Arnold's post is to compare the difference in the wages between government and private sector workers engaged in technically similar work, with the implication that government workers are underpaid relative to the economic value of their work as measured by market wages for technically similar work. This is the comparison that is impossible, the comparison that the whining government employee is making.

If it were true that techically similar job descriptions implied similar economic value, then it would be true that compensation for government workers ought to be comparable to private sector worker engaged in similar jobs.

It would also be true that terrorist bombers would deserve the same wage as controlled demolition experts who bring down condemned buildings. The required set of actions and the skills, knowledge, and training necessary to carry them out are almost identical; what differs is how other market participants value the resulting output. Which of these would a make better basis for determining compensation? Could we really say that the two jobs are comparable from an economic point of view?


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