Pampered Public Employees: Why Government Sees Higher Wages and Benefits

With the economy stalled, wages stagnate, and government debt setting new records every month, it must make people furious to hear that the government coddles its workers with higher pay and richer benefit promises at the federal, state and local level. Federal employees' average compensation has grown to more than double what private sector workers earn, USA Today reported this week.

But was the story accurate? Does the private sector get a raw deal, or is the gap between public and private employees a myth? To find out I spoke with two experts on public and private compensation, one from the right and one from the left.

Here is an edited transcript of my interview with Andrew Biggs, a scholar with the American Enterprise Institute, who has written about the public/private wage gap for the Wall Street Journal. My interview with Christian Weller, a senior fellow at the Center for American Progress, is here.

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 government has produced numbers where they claim that federal workers are underpaid by 22 percent. We say they're overpaid by 12 percent. 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. The federal government is saying "our senior accounts earn less than a senior accountant in the private sector." But somebody who might be a junior accountant in the private would be senior in federal government. For many people, getting more responsibility at a younger age is a reason to go to the government.

The issue of public sector compensation has become increasingly salient, especially the question of whether state pensions are too generous. What's your take?

It's true that many state pensions are disproportionately high. But it's not as simple as it seems. If you look at what employers pay toward employee benefits -- including health and pensions and vacations -- it looks the same. But the benefits are not the same. In the private sector, you get defined contributions. In the public sector, you get defined benefits.

Let me explain that. So let's say a public and private sector employer puts $5,000 toward pensions for each employee. In the private sector that goes into 401(k) and an individual can either get a low risk/low benefits return by investing in government bonds, or higher expected return with a larger risk. In the public sector, the government promises high return and takes all risk. So a public sector worker with same amount of money going into pensions, and higher benefits, but less risk. That's how a public sector employee can get benefits twice as high for each dollar of contribution as a private sector worker.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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