Free Markets, Free People

labor


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