Free Markets, Free People


The Federal Government vs. the Private Sector: wages, benefits and total compensation

Reading over the CBO’s analysis and comparison of private sector wages vs. federal government wages revealed some interesting things.  The CBO broke down its comparison by education – or lack there of.

It seems that if you have a college degree or a professional degree, pay is about equal in the private and government sectors (although benefits are greater if you work for government).  If you have a PhD, you’re much better off in the private sector.

But, if you’re a high school grad or college drop out, the Fed is for you.

Wages:

Federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector.

Benefits:

Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.

Total compensation:

Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.

Now I note this for a very simple reason.  Who do you think is attracted to federal service vs. who do you think might seek employment first outside of federal service?  And what effect do these inflated wages and benefits have on the labor market?

It is sort of like the subsidy/tax question.  If you subsidized something you get what?  More of it.   If you tax it you usually get what?  Less of it.

Well, if you pay wages and benefits far above the market to a certain segment of the population, who are you likely to attract?

And are we necessarily best served by that?

I don’t have anything against high school grads.  I’m simply illustrating a point.  This isn’t a market driven phenomenon.  It is, however, something that will effect labor markets.  It is sort of the opposite of the Medicare problem in the health profession.  Medicare artificially bids down the price of health care to the point that as it continues to lower its payments, more and more health care providers refuse to take Medicare patients.

In this case we have government artificially bidding up the price of labor with arbitrary wage, benefit and total compensation numbers (they’re obviously not tied to private market compensation except somewhat in the case of college or professional degrees).  And, of course, you have to factor in government unions as big reason for this.

What it means is government will take potential workers from the market that might have worked in the private sector at a lower wage.  Now, certainly, there’s no shortage of labor at this point in our economy, however, you get the point.   If we were in such a place (you know, like a recovery with a rapidly expanding private sector?) then you’d have government bidding up wages artificially – and we all know what that means to consumers.  Higher prices.  And to potential employers – higher wages and benefits.

The result – well, probably reduced hiring.  Because any good business is going to do a cost-benefit analysis to determine whether the job they’re considering adding is worth the price they’ll have to pay in wages and benefits.   This is probably one of many factors, at this time, which point to the “no” button.

It is this sort of intrusion in markets (in hundreds of ways driven by government) that distorts them, artificially moves the equilibrium point and causes prices to rise and unemployment to stay high.

~McQ

Twitter: @McQandO

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15 Responses to The Federal Government vs. the Private Sector: wages, benefits and total compensation

  • “This isn’t a market driven phenomenon.”

    I think it’s important to specify what “This” is. The wages aren’t market driven, but I’m sure that given those wages, there are plenty of market drive as a result.

  • “And to potential employers – higher wages and benefits.”

    Depends. The government typically overpays for a lot of labor, especially trade labor. But this does not result in higher labor rates for the general populace. In general it is just the opposite with government contracts underwriting lower wage rates for normal private industry jobs.

    • @MrAcheson Please elaborate on how you come to your last assertion.

      • @Ragspierre I came about the last assertion by knowing several people who worked in the construction trades through college. They had two kinds of jobs, private and government. Government always paid better. I believe this was because of “prevailing wage” requirements. The business owners used the government jobs as revenue generators for the business and the crew which allowed them to offer a more competitive and leaner profit/cost profile on the private jobs.

        But again these people are really contractors not direct government employees.

    • @MrAcheson So who are these beneficiaries of indirect government largesse ?
      It has to be a select group because there is a large segment of trade labour that is not unionized and the federal government has this thing about using unionized workers whenever they can.

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  • And it would appear that government isn’t totally satisfied with artificially inflating only the wages of those directly under their employ. Davis-Bacon literally guarantees a good public screwing of taxpayers who literally cannot afford to have their roads repaired at a much higher than market rate. By virtue of its benevolent intrusiveness, the government has created an enormous number of mini-bubbles kept inflated only by its merciless taxing of citizens and an insatiable appetite for borrowing.

    I’m not even sure where I’m going with this. I guess I’m just pissed off at everything politic.

  • A couple of observations. First, about 1/3 of the Federal workforce are civilian workers in the DoD. The study does not proovide enough detail, but would it be fair to guess that a great many of the high school only education are employed in the DoD, but are former military with the commensurate training and experience that I would say is at least as valuable as a high college degree, and, more importantly, that the non-government high school grads would not have an equal portion that had military experience? Further, there are no minimum wage jobs in the Federal government, the lowest paying jobs come in around $25,000.00 a year. There is whole universe of much lower paying jobs in the private sector that don’t exist in the federal workforce such as service jobs, laborers, etc who make about $15k working full time at minimum wage. About half of all American workers earn less than the lowest wage in government. But the question is, does that mean the government is overpaying, or do those traditionally lower paying occupations simply not exist in the federal government? Just some to consider as arguments that it may not be an apples to apples comparison. The government is not a duplicate of the private economy, it is a different animal.

    • @CaptinSarcastic 50 percent of workers earned less than or equal to $26,363.55 for 2010.

      http://www.ssa.gov/OACT/COLA/central.html

      • @Ragspierre Do you imagine you are supporting what I said or debunking it, because that sounds pretty close to what I said. “About half of all American workers earn less than the lowest wage in government.” ” there are no minimum wage jobs in the Federal government, the lowest paying jobs come in around $25,000.00″

  • Holy RAFTS of assumptions.

    “The government is not a duplicate of the private economy, it is a different animal.”

    Brilliant.

  • Could be worse. At least the private sector still has the ability to opt out of healthcare provisions if they violate their religions…..oh wait a minute

  • I wonder which column University Employees in the Professional Degree or Doctorate reside? I could see their block in the category influencing the result. I’m not sure which way. You have a lot of Doctorate students working for chicken feed while they earn their degrees. OTOH at the other end, a lot of administrative university employees get ridiculous wages. $250k+

    Depending on which way that cuts and what column they are put into may be why that category seems to buck the trend.

    • Sorry that would really be post-doctoral employees/degrees and entry level professors working for cheap (at first).

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