Bryan Caplan  

Overpaid Federal Employees Redux

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In March, USA Today reported that federal employees were heavily overpaid, Peter Orszag countered with some apples-to-apples econometrics, and I objected that Orszag (a) seemed to ignore exceptionally generous federal benefits, and that (b) official benefit statistics fail to count a major perk of federal employment - job security.  This interview with Andrew Biggs offers further insight on the topic:
 

Does the public sector get pampered?

When you control for the differences in characteristics like education and age, the federal government has salaries that are 12 percent higher than similar private sector workers.

You're aware that some studies have come the opposite conclusion: that federal workers are underpaid. Why are they wrong?

...The difference is in the methodology. We looked at the same person -- based on age, education, all those things -- and put him in the federal government or the private sector. The government looked at the same job in the federal government vs. private sector.

They looked at jobs. You looked at people. Why does the distinction matter?

Because government promotes faster, and at a younger age, than the private sector...

[...]

Some government employees don't participate in Social Security. How does that change the benefits picture?

[T]hat's irrelevant because they're neither paying nor receiving benefits. If you follow Social Security, you know it pays a low rate of return... [N]ot to participate in Social Security is actually a benefit, because they're keeping more.

Let's assume that there is a public/private pay gap. So what? Money attracts talent and we want a talented federal work force...

...The pay gap difference between federal and private jobs is not uniform. In general, the pay premium is very large for low skilled workers, and small or negative for highly skilled workers... But most people don't have MDs or PhDs. Up through a Masters, you'll find on average that people make more in the federal government, especially at the low end with folks like paper clerks.

Striking to me: If the public knew that paper clerks were getting a big premium - and Ph.D.s weren't - they might actually favor the status quo on populist grounds.

Update: Adam Ozimek writes me:


Re: your post on public sector pay, I've crunched the numbers using the same dataset and methodology used by studies that liberals cite to show that local and state employees are underpaid. I found that the federal pay premium was from 17% to 24% depending on how much you controlled for geography. The wage premium goes as high as 30% if you include the union wage premium, i.e. union wage premium + public sector wage premium.

Here is my post on it, and here's another using the same data on state and local public sector wages.


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COMMENTS (17 to date)
Milton Recht writes:

Additionally, one should adjust for the number of workers or time needed to complete a project. If it takes three federal employees to screw in a light bulb and only two in the private sector, or if it takes longer for federal employees to change a light bulb than private employees, then equal pay per employee is still overpaying federal employees.

My recollection is that studies find a 20-30 percent inefficiency in government versus private enterprises.

Hyena writes:

As a Federal employee, I can testify to the results.

The Federal government "promotes" very fast because of how jobs on the general schedule operate. Each job comes with a set of pay grades--for example, you might have openings for clerks at grades 4, 5, 6--each year that you meet your performance target you are promoted a grade. Each grade is roughly a 10% increase in pay, though grades 12 and higher have increases of almost 20%. Then there are annual and biennial steps of 3%. Plus COLAs.

So Federal workers should have pay which climbs rapidly in value. I pay about a third of the value of my health benefits. However, there is generally no age adjustment. Were I in my 40s or 50s, I'd pay a much lower percentage and scaling for families is not correct. The government heavily subsidizes older workers and families.

The major issue is that the base pay for an employee with a master's degree and 10 years of experience could be as low as $76,000 and the general schedule tops out at $129,000. Those jobs would be low-ranking executives, regional managers, etc. in my experience. That's not a lot of money considering the size of the operations and experience required.

Hyena writes:

@Milton

My experience is that government employees are actually really efficient. We work ourselves into dead time quite often. The issue reducing our productivity is the dead time, which often results from process mismatches mandated by law or delays caused by documentation.

Laws which are supposed to "increase transparency" are often at odds with efficiency and produce more data than information. Digitization efforts are hampered by the prevailing philosophy in both public and private sectors. A Google-minded system of complete digital capture that is later combed for relevance or interest would work better but raises, sadly, privacy concerns.

So inefficiency is here to stay and the public wants it, even if they never say so directly.

megapolisomancy writes:

Am I the only person who finds it odd that education *as such* needs to be rewarded?

What kind of education are we talking about anyway?

The government may be much more inclined to generously reward people with degrees in sociology or "women's studies."

Hyena writes:

@Mega

Education is an obvious objective standard. It is included in OPM scoring techniques for hiring. Since it is an objective marker, hiring based on education cannot be questioned on grounds of bias or discrimination.

Pretty simple really.

GU writes:

J.D.'s also make a lot less (in most cases) working for the federal government, compared to the private sector. This is implied in the posting, but I thought I would explicitly state it for those that are interested.

Foobarista writes:

GU, are you comparing the feds with biglaw, doc review hells, or somewhere in between? Given that there's an enormous range in lawyer salaries in the private sector, the basis of comparison is important.

Hyena writes:

@Foodarista

Take a look at the JSP tables for attorneys. You'll see that they start at the low-end of the attorney pay range and cap out in the mid-range.

Again: the government pays well at the bottom of the scale but not well near the high end.

Gary Rogers writes:

Just for the record, this could become a non-issue if there were just not so many federal employees.

Steve Sailer writes:

Do they adjust for regional cost of living differences? Washington DC is a high cost area, and federal buildings tend to be in the expensive parts of big cities. For example, the main federal building in Los Angeles is in Westwood near UCLA. That's not a cheap location.

My IRS tax returns are sent to a PO Box in San Francisco, which is a ridiculously expensive location to employ a lot of clerks.

GU writes:

Hyena is correct re: lawyer pay.

Sure, the true bottom feeders of the legal profession* might see a pay raise by moving to the federal government, but most would not, especially if you compare apples-to-apples. DOJ honors vs. first year of Biglaw is a reasonable comparison. Doc review attorney compared to an experienced Treasury lawyer is not a reasonable comparison.

*Some very skilled lawyers voluntarily take low paying "public interest" jobs, but the bulk of low wage lawyers do not take on this status voluntarily.

Noah Yetter writes:

This is all very interesting but it seems so alien, because it doesn't match my experience in the tech field, both public and private sector. Public sector is (nearly) purely seniority-based, and private is (nearly) purely merit-based. As a result private promotes faster and pays more than public. By huge margins.

In my mind's eye I can see how the USA Today version of the story could apply to various undifferentiable administrators and bureaucrats, and even lab scientists and laywers. Just not software engineers.

Hyena writes:

@Steve

Yes. Those are called Locality Pay Tables, they are modifications of the General Schedule. No locality is paid from the General Schedule.

Anyhow, for parties interested in precisely how much all these people are paid, go to OPM.gov/oca . To find out just how this works, you can talk to the National Finance Center. You can also see our per diems, mileage rates and so on, even the forms we fill out for leave.

If you do some digging, there should also be standard job descriptions and general guidelines on qualification standards for grades.

In Los Angeles, the locality pay is 27% greater than the General Schedule.

Hyena writes:

Noah,

There are two reasons for this: (1) seniority is an objective standard of evaluation, (2) the soul of these systems is from the 1940s-50s. The government term for this is "time in grade".

It is manifestly untrue that the private sector promotes faster than the public sector. Most workers are not go-go Reaganauts blasting off to bigger things. Most workers are people who diligently chew through mounds of fairly mindless things--like accounting, payroll, inventory control, customer service and so on. These people almost never see a promotion in the private sector.

Working in the public sector, however, they get regular promotions for 3 years many times and then consistent pay increases.

And don't fool yourself, Noah. Software engineers will one day be an undifferentiable mass as well.

Tom West writes:

I think the fact that the Federal government *does* overpay for low-end jobs is what makes the idea of federal jobs very attractive as a concept.

In an era were it's becoming harder and harder for reasonably hard working, but low end workers to earn a decent middle-class living, Federal jobs may be perceived as the lone bastion of middle class jobs that won't outsource to China.

joegov writes:

Non degree federal employees are way over paid compared to the private sector. Their performance evaluations are nothing more than a rubber stamp. Once hired they are almost impossible to fire. Ask anyone......

Hap writes:

I am a real Government Employee, unlike what I suspect are some phoneys above. What a shame you people are turning on your neighbors. Federal employees neither caused or contributed to the problems this country faces. They are at the mercy of politicians you people send to Washington and quite frankly without them this country would be doomed.
President G. H. W. Bush implimented a pay parity policy based on locality and area market surveys in an attempt to right a longstanding disparity in federal wages. The idea was sound and still exists, however, built in exceptions allow it to be largly ignored which has been the case since. The above article lacks specific details to form any conclusion and represents mere say so. In other words this no more than this guys opinion. He loses any credibility when he incorrectly describes social security. Since 1984 all new federal employees pay social security, he also failed to note that if a retiree on the old pension did earn social security they are automatically penalized 60% of their entitlement before the penalty for earnings is applied, therefore contributing for about a 25-30% benifit. The devil is in the details and this article lacks details and apparently was slanted to represent the authors views not facts. There's so much more I could dispute, but I have to jet on over to my house in the South of France. Redux this again, it's wrong!

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