Sunday, March 07, 2010

Two Americas: Public vs. Private Sector

1. The number of federal employees exceeded 2.8 million for the first time in January 2009, and federal jobs have increased by 82,000 employees since December 2008.


2. Average federal salaries exceed average private-sector pay in more than eight out of 10 comparable occupations. From
USA Today, a sampling of average annual salaries in 2008 are displayed below, the most recent data (click to enlarge):




3. Also
from USA Today, the typical federal worker is paid $11,091 more per year (20% higher salary) than private-sector workers in the same occupation, based on median annual salaries.

Federal Employees: $66,591

Private-Sector Employees: $55,500

4. According to USA Today, average annual benefits (health, pension, etc.) in 2008 for federal employees was more than 4 times greater than benefits for private workers, a difference of almost $31,000 per year:

Federal employees: $40,875

Private sector worker: $9,882

Other key findings from USA Today:

• Federal. The federal pay premium cut across all job categories — white-collar, blue-collar, management, professional, technical and low-skill. In all, 180 jobs paid better average salaries in the federal government (83%); 36 paid better in the private sector (17%).

•Private. The private sector paid more on average in a select group of high-skill occupations, including lawyers, veterinarians and airline pilots. The government's 5,200 computer research scientists made an average of $95,190, about $10,000 less than the average in the corporate world.

•State and local. State government employees had an average salary of $47,231 in 2008, about 5% less than comparable jobs in the private sector. City and county workers earned an average of $43,589, about 2% more than private workers in similar jobs. State and local workers have higher total compensation than private workers when the value of benefits is included.


See related previous CD post on Two Americas.

26 Comments:

At 3/07/2010 11:24 AM, Anonymous Anonymous said...

Why doesn't someone do a report on how many private sector jobs it takes to pay for just 1 new federal employee?
Based on tax rates, it must be that all it takes of the taxes of 9-15 private sector jobs just to pay for 1 federal job.

 
At 3/07/2010 11:34 AM, Anonymous Milam said...

The same topic came up on Marginal Revolution but Tyler Cowen was smart enough to realize there are many other factors which must be controlled when analyzing federal vs. Private pay, not the least of which is COST OF LIVING.

For example, most federal economist positions are concentrated in large, expensive cities like DC, NY, Boston, Philadelphia, and San Francisco. The locality pay adds a lot to salaries which are, in turn, eroded by lower purchasing power. Then they pay more in taxes because they're in a higher tax bracket.

Or perhaps they get paid more because they are actually better economists who actually consider more than one explanatory variable in an apparent relationship.

 
At 3/07/2010 11:51 AM, Anonymous Anonymous said...

... perhaps they get paid more because they are actually better economists who actually consider more than one explanatory variable in an apparent relationship.

Yeah, they're great economists, the current economic environment is evidence of that.

I worked in San Francisco and they Bay Area for decades and the cost of living can be mitigated with a short ride on BART. I guess that genius, Tyler Cowen, failed to consider the substitution effect. Or, maybe it's just that you haven't got a clue.

 
At 3/07/2010 11:59 AM, Blogger PeakTrader said...

Milam, the government's inability, unwillingness, or incompetence to reduce costs doesn't justify more government.

 
At 3/07/2010 12:03 PM, Blogger Mark J. Perry said...

I don't think that he COST OF LIVING wouldn't explain the overall difference in compensation, considering BENEFITS:

$107,466 total compensation on average for federal employess vs. $65,382 for private-sector workers. Federal employee compensation is 64% HIGHER than private-sector, and I don't that can be explained by COST OF LIVING.

 
At 3/07/2010 1:20 PM, Anonymous Titus Pullo said...

What's the comparison of pay and benefits for Fortune 500 CEO's vs Cabinet department heads? The former, like Bob Lutz of GM, get $20 million severance packages for destroying their companies and sending jobs overseas.

 
At 3/07/2010 2:06 PM, Blogger OA said...

Milam said...
The same topic came up on Marginal Revolution but Tyler Cowen was smart enough to realize there are many other factors which must be controlled when analyzing federal vs. Private pay, not the least of which is COST OF LIVING.

For example, most federal economist positions are concentrated in large, expensive cities like DC, NY, Boston, Philadelphia, and San Francisco. ...



Yet remarkably for decades the government has managed to fill these positions without having to pay more than private industry.

The trade off historically was lower pay now for better benefits and an earlier retirement. Now there's no trade off. Why the flip now? Were these cities not expensive before?

And why do these jobs need to be in such expensive areas? Last I checked there are newfangled inventions whereby you can communicate with people by voice, text, and video all over the world. And receive data while sitting at your desk.

The simple truth is, there was a massive increase in federal department budgets last year and this. Much of that ended up in salaries. No need to try to make up reasons.

http://www.gpoaccess.gov/usbudget/fy10/browse.html

 
At 3/07/2010 2:10 PM, Anonymous gettingrational said...

Milam said "...Tyler Cowen was smart enough to realize....". Milam then cites cost of living for federal economists being so high. Debatable.

Tyler Cowen did also write: " These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis." Any debate?

 
At 3/07/2010 2:16 PM, Anonymous Painesright said...

This imbalance will only get worse with the government's takeover of student loans...

The most evil part of all is the government's offer to "forgive" the debt in exchange for years of "public service".

Imagine how hard it will be for a kid who is tens of thousands of dollars in debt, who holds a worthless college degree in his hands and has very few prospects for employment to turn down a job with the Federal government, who is willing to pay him twice the private wage rate and give him unbelievably generous benefits and allow him to retire at an early age with a pension.

There is no way he will be able to turn that offer down... like an offer from the mob, it will be an offer from the gov't that he simply can't refuse.

There is also no way the private sector will be able to compete for the best workers against a gov't who pays double the average wage and forgives all of that debt. So, private companies will go overseas to find workers, which will make finding a job even harder for non-government workers... what a vicious cycle!

A pure, truly free market would have never allowed the current crisis we are in to happen. It was caused by many, many years of gov’t intervention and free market manipulation, which led to an entitlement mentality.

Peter Schiff explains it better than I ever could. Forward to 6:00 minutes for his argument specifically regarding gov’t manipulation of student loans and debt forgiveness programs.

http://www.youtube.com/watch?v=u7skTzAkmUE&feature=channel

(that is just one of many of his video blogs where he has talked about the negative unintended consequences of gov’t student loans and loan forgiveness programs... they are bad regardless of what the income limit is. Thomas Sowell breaks it down brilliantly in his book “Economic Facts and Fallacies”)

The recent "defend education" protests expose the real agenda behind the government's push for "free" education for everyone. It was sponsored by practically every Socialist, Communist and Progressive group in the nation.

The website looks like something straight out of Lenin's Russia. Mind control is what this is about (and lining teachers and teachers' unions pockets in the process).

http://www.defendeducation.org/

People don't seem to realize that by demanding that "everyone deserves a college education" and by distributing an endless supply of easy-to-get student loans, the government is causing the price of a degree to skyrocket, while causing the quality of the education to plummet.

However, it is much, much more than just a way to finance education... it is a way to fundamentally transform America into a Socialist/Communist nation by controlling our thoughts through education and enslaving us financially to the State.

We have to stand up to this and protect our children, right now, or we are going to lose the fight for America's soul.

 
At 3/07/2010 4:33 PM, Blogger misterjosh said...

God that's depressing.

 
At 3/07/2010 5:07 PM, Anonymous lyle said...

The point is well taken that a lot of government jobs tend to be on the coasts not in the interior. I say move a bunch of folks to Detroit and Flint, it will create a housing boom. (For example move the back office of most agencies there) Or alternativly darkest Iowa or Missouri

 
At 3/07/2010 6:23 PM, Blogger Ron H. said...

On the bright side, there are some natural limits to this madness.

As M. Thatcher said:

"The trouble with socialism, is that eventually, you run out of other peoples money."

 
At 3/07/2010 8:38 PM, Anonymous Anonymous said...

Cowen's website attracted enough economists to shoot down the spurious data, but apparently this group can't see through it.

I've got it: let's outsource to Halliburton.

 
At 3/07/2010 9:00 PM, Blogger juandos said...

Hmmm, think of the Transportation Security Administration...

The airport at St. Louis, Mo (Lambert Field) has a lot less flights today than it did seven years ago...

There has NOT been a decrease in TSA employees though...

Imagine that...

 
At 3/07/2010 10:04 PM, Blogger PeakTrader said...

Titus Pullo, top baseball players get $20 million for a bad year too.

Without unions and government (including CAFE standards), GM may be worth more than GE.

 
At 3/08/2010 12:58 AM, Anonymous Milam said...

Yeah, they're great economists, the current economic environment is evidence of that.

So government economists at the BLS, Census Bureau, Army Corps of Engineers, BEA, and USGS are responsible for this crisis? Gee, I always thought it was bad government housing policy perpetrated by politicians, most of whom have never taken an Econ class.

I worked in San Francisco and they Bay Area for decades and the cost of living can be mitigated with a short ride on BART. I guess that genius, Tyler Cowen, failed to consider the substitution effect. Or, maybe it's just that you haven't got a clue.

What's the substitute for a $4500 a month morgtgage, tax and insurance payment? Oh, a $2500 a month rent payment!

If you lived in California, then you know what they pay in income taxes each year. What are the marginal income tax rates in Michigan, Kansas, and North Carolina at those published salaries?

Transportation isn't nearly the most costly part of living in the Bay Area. How about housing, taxes, auto insurance, food, and gasoline. What's the opportunity cost of your time living in Concord and commuting to SF every day?

Nooo, cost of living doesn't matter one bit and neither does the unionization of government workers, experience, or skills. Have you ever heard of ceteris paribus, or have you forgotten it?

The costs of living in Washington DC, New York City, and San Francisco are several MULTIPLES of that of Wichita, KS; San Angelo, TX; or Flint, MI. Do you want try converting those salaries from nominal into REAL salaries again, doctor? Do you want to look at the impact of progressive taxation on those higher salaries again?

The government "clergy" are mostly military chaplains who earn the same pay as everyone else in their pay grades. They don't rely on the size and generosity of their congregation for pay.

Private crane operators make many times more than this study suggests - over $150,000. It's a highly-skilled and dangerous job.

Cowen's website attracted enough economists to shoot down the spurious data, but apparently this group can't see through it.

Yes, economists who remember their FIRST DAY in Econ 101 when they learned about holding all else equal (ceteris paribus) in analysis.

Tyler Cowen did also write "These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis."

And Tyler Cowen didn't take the analysis any further than that either. This is back-of-the-envelope, two-variable analysis by a moron journalist. The fact that ANY economist can't see through the nonsense is disconcerting.

Benefits such as health, dental, and vision are ALSO subject to an area's cost of living. Many government jobs are also UNIONIZED with the principals (taxpayers) removed from the process. It's not surprising the retirement benefits are plush.

Reinforcing people's ignorance about economics by ignoring the basic principles of analysis just to foment discontent about government is scurrilous.

 
At 3/08/2010 1:05 AM, Anonymous Milam said...

Milam, the government's inability, unwillingness, or incompetence to reduce costs doesn't justify more government.

Funny, but I don't recall stating anywhere that this or anything else is a justification for "more government."

Where do you get the idea I want more government? Oh, you get it from the antithesis of this post which is, "Government workers get paid more, therefore there is too much government."

So taking issue with a boneheaded economic analysis about government salaries has now become fervent support for ever-growing size and scope of government. I see, I see.

And salaries of particular persons in government is not an adequate measure of "more government." Even in a limited government bearing allegiance to the US Constitution, I think we'd all appreciate highly-skilled, well-compensated government employees.

 
At 3/08/2010 1:13 AM, Anonymous Milam said...

Oh, I forgot to mention that since this data was a sample, the point estimators are a statistic - hence a random variable.

The study doesn't publish the standard error of the statistics, so we can't determine whether ANY of these salary differences are even significantly different from zero.

Yet another rookie error in analysis.

Failure to standardize the pay for purchasing power and omitting other important explanatory variables such as experience, skill, unionization, etc. has already biased the estimators. And that doesn't even begin to question issues of survey question bias, sample selection bias, and response bias.

 
At 3/08/2010 4:26 AM, Blogger PeakTrader said...

Milam, I didn't say you wanted more or less government. I was responding to the article that shows a steep increase in government employment, and your own words on cost of living, purchasing power, and taxes.

Also, you should know government economists aren't better than private economists based on the data. However, I suspect they're better economists than the data reflect.

 
At 3/08/2010 10:41 AM, Anonymous Anonymous said...

"Private crane operators make many times more than this study suggests - over $150,000. It's a highly-skilled and dangerous job."

Ah, some do and some don't. The one I know personally works offshore and has been doing so for quite a number of years. I forget his tonnage rating, his pay is based on years experience and the cranes lifting capacity. He doesn't make any where near $150,000. His benefits are good; but, not as good as working for the government. Finally, when there is no need for his services he is laid off - something that rarely happens in government employment but often happens in the lift business.

 
At 3/08/2010 12:45 PM, Anonymous gettingrational said...

Milam citesthe comparison of federal employee benefits ($40,785) vs. private employee ($9,882) and dismisses as: "back-of-the enevelope, two variable analysis by a moron".

Milam, this analysis was provided by the BEA (Bureau of Economic Analysis). The BEA is a federal agency under the Department of Commerce headed by Cabinet Secretary Gary Locke.

 
At 3/08/2010 9:20 PM, Blogger Michael said...

Where did you find the data showing 2.8 million federal employees? The only stuff I can find at bls.gov says ~ 2.0 million. Thanks.

 
At 3/08/2010 9:56 PM, Blogger Mark J. Perry said...

Michael: I added a link in the post to the data source for federal government payroll employment. It's BLS data via Economagic.

 
At 3/09/2010 11:21 AM, Blogger Michael said...

Thanks for the data, Mark. Looking at it I was able to see that we haven't seen growth like this since Reagan grew federal employment by 270,000 to 3.16 million. Looks like Clinton is the guy who really took it down to the 2.8 million Obama is growing it from.

 
At 3/09/2010 12:21 PM, Anonymous Moon said...

Clinton "took it down" by cutting active duty military personnel and DoD support staff. It was increased by Bush to fix the damage Clinton caused to our military, effectively adding back the three divisions we lost in the 90s.

These numbers would be even higher if you counted all the private contractors employed directly by the federal government.

 
At 1/31/2012 6:59 PM, Blogger netZombie said...

"A pure, truly free market would have never allowed the current crisis we are in to happen. It was caused by many, many years of gov’t intervention and free market manipulation, which led to an entitlement mentality." So you're saying crony capitalism doesn't exist? Please...we have not had, nor will probably ever have, a "truly pure free market" because that "free market" depends on a model that doesn't fit with reality. So our corporatist gov in bed with big business did nothing to cause our collapse and are simply the "victims" socialist, communist, and progressive groups? Lay off the Kool-Aide.

 

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