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Apples, Oranges, and Government Pay

Aug 22, 2010 • Government, Labor, Thinking Economically • 99 Views    No Comments

Hearing that federal employees earn more than people working in the private sector, how should we respond? Let’s look at the facts.

Assessing someone’s earnings involves salaries and benefits.  According to the BEA (Bureau of Economic Analysis) at $81,258, the average federal worker earns 60% more than someone in the private sector. Looking at benefits, the gap grows larger with federal workers getting $41,791 and private workers at $10,589. Combining salaries and benefits, we have federal workers with total average compensation of $123,049 compared to privately employed workers at $61,051.

We can also look at raises and inflation. Between 2000 and 2009, the average federal worker’s salary increased by 33% more than inflation. Including benefits which primarily refer to pensions for federal employees, average compensation, adjusted for inflation, is up 36.9%. By contrast, privately employed workers are receiving 8.8% more.

Looking at salary data, Democrats and Republicans disagree about whether we are comparing “apples to oranges” or “apples to apples”. Saying “apples to oranges”, people who believe that the federal pay scale is appropriate emphasize that many federal jobs require a more highly skilled worker. Those who disagree say we are comparing similar issues, especially when focusing on yearly salary increases where percent increases can be compared.

The Economic Lesson

Having looked at the public/private sector pay gap and the debate that surrounds it,  as economists, we should return to cost and benefit. To consider why there is a public/private sector pay gap, we can identify the opportunity cost experienced by private businesses and the federal government.

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