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:

cato chart on federal private wage difference.png

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.