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Are Federal Employees Overpaid?

In an op-ed at National Review Online earlier this week, Andrew Biggs, a resident scholar at the American Enterprise Institute, argues the United States "pays its public sector better than the private sector -- and other countries, too." Here's Biggs' introduction:

"Amid the recent hubbub over municipal bankruptcies and rising public-employee pension costs, pay for state and local government employees has gotten a great deal of publicity. Lost in the press attention, however, is that federal-employee compensation remains a problem, too, and new data again indicate that Washington, D.C., may be overpaying for the two million workers it employs.

"In a 2011 AEI paper with Jason Richwine, I concluded that federal workers receive salaries and benefits around 37 percent higher than do private-sector workers with similar levels of education and experience. This prompted congressional requests for the Congressional Budget Office to conduct its own analysis, which, the requesters hoped, would rebut ours. Using slightly different methods, the CBO showed a smaller wage premium for federal workers. They omitted a $2.3 billion per year federal subsidy to government workers’ accounts held by the Thrift Savings Plan, but still reached qualitatively similar conclusions: Federal workers receive pay and benefits 16 percent above private-sector levels."

Biggs says, "There are other ways to assess government-employee pay," but "thanks to data from the Organization for Economic Cooperation and Development, the “rich man’s club” whose membership includes most of the world’s developed, high-income countries. The OECD figures let us compare how U.S. federal-government employees are paid relative to central-government employees in 18 other countries."

"The OECD analyzed the salaries, benefits, and paid leave for government employees; the combined value of these three categories equals total compensation. The OECD looked at four main categories of public employees," specifically senior management, middle management, professionals (statisticians and economists), and secretarial staff.

Here is how Biggs summarizes how employee compensation compares between OECD civil servants and U.S. federal government employees:

"The OECD data show that, with the exception of the very highest-ranking civil servants, U.S. federal employees do better than central-government workers in other countries. U.S. public employees ranked as D1 — a level immediately below cabinet secretaries, making up around 0.2 percent of federal workers — receive lower pay relative to the average citizen than in other OECD countries. But in every other category, U.S. federal-employee pay is even with and sometimes substantially ahead of that paid in other developed countries. On average, U.S. federal employees receive 16 percent higher total compensation than do similar workers in other OECD countries, even after accounting for differences in the countries’ average income levels."

The following chart reflects Biggs' summation:

Biggs asks rhetorically:

"Now, do these results prove that federal-government employees are “overpaid” — that is, that they receive higher pay than do similar private-sector workers? Not necessarily. If the U.S. federal government recruited higher-quality employees — say, with better education and experience than individuals filling the same jobs in other countries have — then the federal government’s relatively higher pay might be justified.

"But the evidence points against that conclusio . . . ."

Kudos to Andrew Biggs for making a well thought-out argument.

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