Arnold Kling  

How to Evaluate Government Pay

Taxation of Unemployment Benef... Two Questions for Orszag...

Budget Director Peter Orszag writes,

So the bottom line is: when education and age are held constant, the entire difference in average pay between the federal and private sectors disappears.

Let me suggest a different indicator:

How far could you lower Federal pay without raising the number of vacant positions in the Federal work force by more than 1 percentage point?

That is, if 2 percent of positions are vacant now, how much could you lower Federal pay without raising that vacancy rate to 3 percent?

I would bet Peter Orszag that you could cut Federal pay by at least 15 percent without causing a one percentage point rise in the vacancy rate.

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CATEGORIES: Fiscal Policy , Labor Market

COMMENTS (18 to date)
no writes:

This is clearly endogenous to the unemployment rate. If you tried again with 5% unemployment I bet you'd get a very different result.

AB writes:

The salaries are not the biggest disparity, the benefits are. From the article he links: "These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis."

So he picks the easy target of an 8K salary differential which supposedly is just a factor of age and education, and completely ignores the $31K difference in benefits.

KOP writes:

I am not sure about the American Public Service - but as a rule I would expect an organisation made up of Policy Advisors to have a higher average salary than say another organisation on average whose employees do not require skills and experiences in high quality writing, research and analysis. The pay gap is also present in non-unionised public services - isn't that the free market paying a higher price for a rarer cognitive skill.

Christopher writes:

I think the whole cross section of typical gov't workers are overpaid including cops (in most areas) teachers, and firemen. There is a surplus of women who want to teach, a surplus of men (again, in most areas but, especially those near military installations) who naturally want to be cops and firemen. The pay could be lowered and the positions would still be filled. In a lot of places (urban), there are too many firemen. It is a heroic job but, most of the time the firemen are sitting around or training. Building codes have made the chance of a house fire very rare. Of course there are geographical considerations to account for like forest fires in CA. I am torn on what to pay city and state legislators. In some states and cities, like mine, they offer only token pay so it attracts only the rich, the very politicaly motivated, and females that have the support of middle income husbands.

david writes:

If they're paid so highly, why isn't competition for government jobs (or entry into the associated unions) more vicious?

Andrew writes:

Does anyone have a source for Peter Orszag's claims in that piece? He's presumably citing an econometric study, but doesn't list any citation.

Dano writes:

...the entire difference in average pay between the federal and private sectors disappears

So didn't Obama hire a "czar" to oversee private sector pay, especially for those receiving government bailouts, because what the executives were being paid in the private sector was too high?

And now the director of the OMB says there is no difference between federal and private sector jobs. Doesn't that imply that the pay for federal jobs are also too high?

But National Treasury Employees Union President Colleen Kelley says the comparison is faulty because it "compares apples and oranges." Federal accountants, for example, perform work that has more complexity and requires more skill than accounting work in the private sector, she says.
Job Federal Private Difference
Broadcast technician $90,310 $49,265 $41,045

I'm not familiar with the duties of a broadcast technician. Why would being a broadcast technician for the government require that much more skill?

Peter Twieg writes:

It doesn't appear that Orszag considered the possibility of higher education levels being endogenous - if one is offering wages above the market-clearing level, one will draw a more-talented applicant pool and be able to discriminate in favor of them in hiring, regardless of whether their skills are conferring any marginal benefit.

Ben Hughes writes:

@Peter: Your comment perhaps explains wages above the "market-clearing" wage in general, but this has nothing to do with the difference between public sector and private sector wages as you would expect any such effect to be present in both instances.

In any case, indeed Orszag is clearly in error for not even taking into account benefits here. While his statement may be technically correct, his meaning doesn't properly convey the distinction between "pay" and "overall compensation", the latter of which we should be concerned with.

wd40 writes:

Let me suggest a different indicator:
How far could you lower private pay without raising the number of vacant positions in the private work force by more than 1 percentage point?

aretae writes:

@david: I was surprised in talking to firefighter/police friends of mine. In greater Chicago, where I live, the applicants to openings ratio is well over 10:1, and is not especially up because of the's always been 10 or 100 applicants per position. 3 friends in the police/fire industries spent 5,7, and 9 years applying to positions before they got in, and one of those guys is Chicago-Irish with 3 generations of family in every fire-house in the state. As to teachers...the places with open positions are places you don't want to work, and the pay sucks early, and the 1-year teacher's college is often mind-numbing. Places that you would want to work as a teacher (students want to learn, don't carry guns) are all heavily backlogged (though maybe not at Fire Department levels) with applicants anyhow, usually all well-overqualified (masters, doctorates).

@wd40 -- Your question doesn't seem to be analogous. Bryan's question was meant to discover/bet how much people prefer the security of a government job and benefits vs. the paycheck. Since government jobs have a higher security, a (much) larger set of benefits, AND a higher would make sense that one could drop the salary, probably substantially, and get no change in the relative rates with which people prefer government to private positions. Your suggestion makes no such equivalent comparison.

Doc Merlin writes:

"If they're paid so highly, why isn't competition for government jobs (or entry into the associated unions) more vicious"

Um, it is. Look at firefighter position openings in heavily unionized states, lots of lawsuits backstabbing etc. It is really nasty.

Daniel writes:

I work for the federal govt. as a computer specialist. I have a friend who was unemployed for a while, a database specialist. I tried to get him interested in working for our agency. Basically, he laughed and said he couldn't take the pay cut.

I think the whole pay thing is way more complex than this discussion makes it out to be.

And in self defense, nobody ever asks me what our pay should be or should we get a raise this year.

MernaMoose writes:

All this debate is fine and good, but there's more iceberg lurking here.

If you really want to make money working for the government, the way to do it is to become a second tier contractor. These are the companies that supply the prime contractors (who are heavily regulated), and there's huge money being made there.


As an engineer I can assure you, competition for government positions in my profession is fierce. Like the fireman and teacher stories above, it can take years to land a position in a government R&D lab.

Mike K writes:

There are some intangibles that need to be brought in--government jobs are highly resistant to furlough, once in, esp in Federal government, there are lots of opportunities to change careers, move, etc.; and many positions can exert power over the public. Never pass by the idea that some people really like being the Lord and Master of your driver's license.

David Youngberg writes:

@Ben: Peter Twieg's causation question is perfectly reasonable. Orzsag claims higher wages are there to compensate a more educated workforce, needed because the job is more complicated. But the pay could be higher for political reasons (not logistical ones) which causes rents and thus more interest in the jobs. One of the groups who tend to get these jobs are better educated people than the average person (just like people who are better connected than the average person will tend to get them).

That education and experience is used as a sorting mechanism doesn't necessarily justify the costs. I could offer $250K a year to a private doctor and I will get many qualified doctors at my doorstep. But if I don't need such a qualified doctor (and most people don't), then I wasted a lot of money. I'm very suspicious that on average a government worker has an inherently harder job than her private sector equivalent.

At the same time, one reason for the discrepancy might be the time lag people have to suffer to get a job. I have several friends who gave up on getting government jobs because the background check can take over a year. Maybe that wage premium is compensation for patience (though that's one hell of a premium).

dlr writes:

KOP, I have to object to the assumption that American policy analysts have high quality writing, research and analysis skills - let alone anything in the way of rare cognitive ability. Take a look at their output. Based on all of the available evidence, I think we need to go in with the assumption that they would have have trouble graduating from clown school.

richard writes:

The stats on private vs. public suprise me. Though, in part this is probably because I work for the government and I always amazed at how high the billing rates are for our contractors.

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