Aug 25 2009, 12:55PM
Why Do Federal Workers Make So Much Money?
A friendly acquaintance from Cato sent me this article and asked what I think about it. First, I think I like pictures more than words, so let me summarize the article with this chart:
This is used to make the argument that "Federal wages should be frozen for a period of years, at least until the private-sector economy has recovered and average workers start seeing some wage gains of their own." Well, I think that's getting a bit ahead of the data. Here are a few quick thoughts on why:
1. The Cato chart does not account for the differing composition of
federal and private workers. It seems probable to me that the average
federal employee is more highly skilled than average private-sector
employee. (Especially if we're talking about federal civilian workers and not military. What does it look like when you include both, I wonder? And why does Cato leave that out?) If the composition is significantly different, it would help explain why federal workers are
more highly compensated.
2. That Cato chart does not account for the differing growth in average
compensation for skilled versus unskilled workers. My understanding is
that, over the past few decades, the compensation for skilled workers
has increased substantially while the compensation for unskilled
workers has stagnated. If (1) is true, then (2) would explain some of
the difference in growth rate.
3. The Cato chart does not account for the changing composition of
federal and private sector employment. If federal workers are becoming
more skilled over time, then that would also explain some of the
difference in growth rate.
4. Federal workers are probably highly concentrated in areas with a relatively high cost of living.
5. I'm sure there are some federal workers that over-compensated, and
some that are under-compensated. (No less a bleeding heart liberal than
Chief Justice John Roberts used to complain about the relatively low
compensation of federal judges.) But suggesting an across the board wage freeze brings
a sledgehammer to a garden party.
6. And seriously, Cato wouldn't actually defend a gigantic wage freeze in a recession, would it? Yikes.
More generally, though, I'm also open to the two explanations that
Cato offers for the rise in federal compensation: Namely, spoils (elected
officials currying favor with federal employees) and unions. I'm quite
happy with unions in the private sector, but it does seem to me that
federal unions are far more problematic, and I have no shame in saying that. First, they don't and can't compete with
companies that aren't unionized. (There is no "market test" of the
union's efficacy.) Second, and related, federal unions negotiate with
an employer who distributes the cost of high compensation across the
entire population -- and thus has less incentive to be stubborn.
But as someone who thinks government is a potential force for
good, I'm not instantly bothered by the fact that federal compensation
might be high. I think the federal government needs to compete for
talented people to be effective! (And yes, I realize this also raises
the price of labor for private firms.) The hope is that it's worth the
cost.
So wages for federal employees haven't stagnated as much as in the private sector and that's a problem to be "fixed" instead of an indictment of the private sector's treatment of the middle class as red ink to be reduced and/or outsourced at any cost? The reason for the difference is that in the private sector wages haven't even kept up with inflation. If this trend continues there will not be a middle class to support America's economy which is largely based on consumer spending.
How can you "summarize" this article using "pictures" and leave out the graph showing the true cost of Federal compensation which includes the cost of benefits which these positions incur annually. This raises the average wage for the Public sector to over $ 115,000 per person which is mote than DOUBLE current private sector compensation. How can an organization that is bleeding red ink so prfusely offer compensation that is more than twice the average Private Sector. Your argument regarding skilled vs non skilled is lame at best. It is time for the government to become more responsible.
Whether federal employees (and state and local employees) "deserve" steadily increasing wages or higher wages than the average private sector worker is not the only issue. Private sector incomes for all but the top few percent have stagnated so much that we can no longer afford to pay government employees what they may deserve. Same with the health care and financial services sectors and other lucky duckies whose real incomes have kept rising when the real incomes of the 5/6 of working Americans who are non-supervisory workers peaked in 1973 and have been lower ever since.
Back in the 70s, it was commonly understood that public employees were underpaid compared to equivalent private sector workers. Now the public sector jobs are preferred because, except at the very senior levels, they pay better, and have more security and better retirement benefits. For 30 years, private employers and public policy makers have conspired successfully to press downward private sector wages through globalization and other means. What those who have been unaffected by this need to realize is that the masses of people whose purchases and taxes are the source of their incomes can no longer afford them. The market is telling government employees and others previously unaffected that their incomes have to come down too, no matter how much they "deserve" to have their incomes continue rising.
Conor,
An interesting subject. It seems that your first three points all revolve around the assertion that federal workers are more skilled. At first this made some intuitive sense but the more I think about it the less sure I am that it is necessarily true.
A lot of the work of federal employees would seem to be pretty routine stuff. Shuffling paper, document review and customer service. Granted there are a lot of jobs that require high level skills but I think it would be useful to see a lot more data before I could accept the "higher skill" argument. Any idea where that might be lurking?
Though the commenter above made his point a bit strongly, the issue of fringe benefits can't be ignored. Any thoughts on that one?
tom,
The federal work force doesn't contain all the no skilled positions (WalMart, McD's, etc.) that the private sector has, I bet that makes a lot of difference in the graphs. A lot of the necessary low level work (e.g custodians) is contracted out these days.
Brian
One further thought.
I suspect that a graph of compensation for many state and local government employees would show a similar trend.
My understanding is that the federal work force has a high percentage of PHD's than does any Corporation or institution. It has become composed more and more white collar workers over the last 30 years. But it is ridiculous to compare the pay of all federal collar workers with all workers in the economy-it is apples and oranges. There is little question that attorneys make far less working for the government however one chooses to measure the salary. The problem with the government salary is that federal workers have a lower productivity level than private workers, not because of how hard they work or the hours, but because there are so many levels of beaucracy (levels of review) in the federal government. If the government would decentralize its decision making in line with the private sectors, the government could substantially cut its work force and also remove political influence from its decision process. Keep in mind that the more workers who touch a piece of work the less productive are all the workers involved.
The biggest problem in the Fed work force is not salary (the carrot) but the lack of a stick. No one is ever let go. The process is too long for managers to even set out on it. Fed workers become like deer in Yosemite. Unafraid of being hunted they get lazy.
Brian
FYI, calculating from the above chart, the average annual rate of increase for private employees was 3.18% and for federal employees was 5.52%. Maybe the average federal salary should be higher because of a higher average skill level, but why should the rate of increase be greater? The incremental value of higher education vs. high school has stagnated during this period. http://online.wsj.com/public/resources/documents/info-flash08.html?project=COLLEGE0807
The chart in an article on ""Federal Pay Gap With Private Sector Growing" (http://www.fedsmith.com/article/2098/federal-pay-gap-private-sector-growing.html) displays the relative pay of federal and private sector employees in colorful detail.
Also, the article on "Federal Employees and Their Pay: How They Stack Up" (http://www.fedsmith.com/article/2100/federal-employees-their-pay-how-they-stack.html) shows the actual pay distribution of the federal workforce from under $20,000 per year to $180,000+