Scholars Andrew G. Biggs and Jason Richwine recently authored a discussion for the American Enterprise Institute of the various ways of examining whether government employees get richer compensation than peers in the private sector. Published in the Weekly Standard, the title provides their conclusion: “Yes, They’re Overpaid.”
Nevertheless, finding ways to make valid “apples-to-apples” comparisons is complicated. The authors explain several methods, and conclude that a combination provides the fullest answer.
The most common approach is the “human capital model,” which compares workers with similar education and other characteristics like age, experience, etc. Various studies using this method find that lower- and middle-skilled government employees get a substantial pay premium over their private-sector cohorts, and a smaller one for jobs that require more education and higher skills.
Another method is to examine what happens when workers switch jobs from the private to the public sector. Available data show that, on average, a worker who leaves a private-sector job on Tuesday finds himself making 8 to 28 percent more if he starts working for the government on Thursday, although it's unlikely his education and skill levels leapt that much on Wednesday. Moreover, the extra pay premium probably increases the longer he remains on the public’s dime.
Biggs and Richwine also look into methods for comparing fringe benefits in the public sector vs. the private sector. “Quit rates” is one, the idea that people are less likely to quit a job that has above-average benefits. Not surprisingly, government employees are far less likely to quit, and not just because they’re among the last people in the country to be granted antiquated defined-benefit pensions: Federal employees who started working after a much less generous pension system went into effect in 1984 have even lower quit rates than those hired earlier.
Thanks to a combination of good data from both the federal Bureau of Labor Statistics and the state Civil Service Commission, Mackinac Center analyst James Hohman was able to generate a surprisingly precise statistical comparison of public vs. private sector employee fringe benefits in Michigan. His methodology and sources, as well as additional information, are available here.
Hohman’s results not only confirm Biggs and Richwine’s conclusion regarding fringe benefits — yes, they get more in government — but quantifies it: Michigan government employees at all levels including local governments, the state, public schools and colleges and universities, get fringe benefits that exceed private-sector averages by $5.7 billion every year.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.