CBO Study on Federal Pay

Posted by Chris Edwards at http://www.cato-at-liberty.org/cbo-study-on-federal-pay/


CBO has released a study comparing the wages and benefits of private sector and federal non-military workers. The study uses statistical techniques to make comparisons with adjustments for education level, experience, and other factors.
Here are the overall results:

• The wages of federal workers are 2 percent higher than similar private-sector workers, on average.
• The benefits of federal workers are 48 percent higher than similar private-sector workers, on average.
• The total compensation (wages plus benefits) of federal workers is 16 percent higher than similar private-sector workers, on average.

CBO finds that the federal compensation advantage varies by education level. People with low and middle levels of education generally do better in the government, while people with doctorates generally do better in the private sector.
CBO’s results are generally in sync with my observations on federal pay. For example, I’ve pointed to the excessive pension and health benefits received by federal workers. The CBO says:

The federal government provides retirement benefits to its workers through both a defined-benefit plan and a defined-contribution plan, whereas many large private sector employers have replaced defined-benefit plans with defined-contribution plans. The federal government also provides subsidized health insurance to qualified retirees, an arrangement that has become uncommon in the private sector.

I’ve also noted that high job security is an important federal benefit that should be considered when deciding on federal pay levels. Federal workers get laid off and fired at much lower rates than private-sector workers. That benefit has value, and thus federal pay rates should be set somewhat lower than for otherwise comparable jobs in the private sector. The CBO notes:

…greater job security and less uncertainty about the size of pay raises tend to decrease the compensation that the federal government needs to offer, relative to compensation in the private sector, to attract and retain employees.

Given these results, I’ve proposed these action items for Congress:

• Continue the federal pay freeze for a number of years.
• Repeal the federal defined-benefit pension plan.
• Hire an outside accounting firm to audit the Federal Salary Council’s apparently erroneous “pay gap” method, which always seems to find that federal workers are grossly underpaid.
• Privatize as many federal activities as possible so that markets can figure out the appropriate levels of compensation.