This is a very old post of Bryan's. Things have significantly changed since this was written in 2012. FERS-FRAE in 2014 changed the salary contribution for the pension from 0.8% to 4.4%, making it less valuable, and private sector wage growth has significantly outpaced government wage growth in the past decade. Things are roughly equal now at the bachelor's degree level, and substantially worse above that. Here's CBO's 2022 analysis: https://www.cbo.gov/system/files/2024-04/59970-Compensation.pdf
(Note: I'm also not a fan of CBO's method of measuring benefits by cost incurred to the employer. I understand why they do it that way, but I suspect it makes the public sector look better than it should because their costs are higher due to inefficiency.)
Another difference is that the government often has arbitrary degree requirements. For example, to become a commissioned officer you need a degree, but it doesn’t matter what the degree is in. So it would follow that the real difference is greater because the government is employing people with lower quality degrees. Engineers face a higher opportunity cost in accepting a government position, because they can earn more in the private sector, but english lit majors’ best option is often a government job.
For a long time (really, until a few months ago) a government job was safer than its private-sector counterpart. You had lots of benefits and it was much harder to get fired. As such you tended to attract people seeking security. (I was frankly planning on one for a long time for exactly this reason; I hate risk.) That would lead to a lower salary (safety is just another compensating differential) and a more compressed pay scale.
Are federal employees paid more than their private-sector counterparts, including intangibles like job security? One good way to answer is to look at quit rates: the share of employees who quit their jobs to move to another. If the quit rate is higher for those in the private sector, then we can infer that private sector workers judge their jobs to be less desirable than their government-sector counterparts, all things considered, and thus that their all-in compensation is less. (This is what economists call revealed preference, the idea that people reveal their true preferences by their actions rather than by their words--or the results of some indirect study such as the CBO tries to do). I don't know how quit rates compare among lower-paid workers, but for those at the top of the federal pay scale (SES-level), quit rates have been close to zero for a long time, far lower than for similar workers in the private sector. This says that those at the top of the federal pay scale are on average overpaid relative to their private-sector counterparts, a conclusion in line with my own observations after 27 years in the federal government.
That is true. Perhaps because of the boring nature of their jobs (airport screeners) and the job security is going down in the era of Trump, maybe people are rethinking.
Gov't bureaucracies are clever enough to know that pay surveys are always being run on them. The best way to find out what employees are earning is to look at a pay period of a division in a department or agency and see what's being paid to each individual. Later, if allowed, the individual employee's background can be obtained. Then match credential to salary - voila'
Anecdotally, I understand teachers are financially incentivized to get higher degrees (appreciate these aren't federal gov workers). Figure 6 below may be relevant data, but it also shows higher base salary for those w/o bachelors vs those with.
This is a very old post of Bryan's. Things have significantly changed since this was written in 2012. FERS-FRAE in 2014 changed the salary contribution for the pension from 0.8% to 4.4%, making it less valuable, and private sector wage growth has significantly outpaced government wage growth in the past decade. Things are roughly equal now at the bachelor's degree level, and substantially worse above that. Here's CBO's 2022 analysis: https://www.cbo.gov/system/files/2024-04/59970-Compensation.pdf
(Note: I'm also not a fan of CBO's method of measuring benefits by cost incurred to the employer. I understand why they do it that way, but I suspect it makes the public sector look better than it should because their costs are higher due to inefficiency.)
46% higher benefits while most of them are destroying value, not creating it.
Another difference is that the government often has arbitrary degree requirements. For example, to become a commissioned officer you need a degree, but it doesn’t matter what the degree is in. So it would follow that the real difference is greater because the government is employing people with lower quality degrees. Engineers face a higher opportunity cost in accepting a government position, because they can earn more in the private sector, but english lit majors’ best option is often a government job.
For a long time (really, until a few months ago) a government job was safer than its private-sector counterpart. You had lots of benefits and it was much harder to get fired. As such you tended to attract people seeking security. (I was frankly planning on one for a long time for exactly this reason; I hate risk.) That would lead to a lower salary (safety is just another compensating differential) and a more compressed pay scale.
Are federal employees paid more than their private-sector counterparts, including intangibles like job security? One good way to answer is to look at quit rates: the share of employees who quit their jobs to move to another. If the quit rate is higher for those in the private sector, then we can infer that private sector workers judge their jobs to be less desirable than their government-sector counterparts, all things considered, and thus that their all-in compensation is less. (This is what economists call revealed preference, the idea that people reveal their true preferences by their actions rather than by their words--or the results of some indirect study such as the CBO tries to do). I don't know how quit rates compare among lower-paid workers, but for those at the top of the federal pay scale (SES-level), quit rates have been close to zero for a long time, far lower than for similar workers in the private sector. This says that those at the top of the federal pay scale are on average overpaid relative to their private-sector counterparts, a conclusion in line with my own observations after 27 years in the federal government.
The pension is relatively small, right (1% or so?) with TSP making up most of the benefit?
The wage compression thing is normal amongst governments around the world
Doctor Caplan wrote this long ago. In the age of Trump, job security for the Feds is more tenuous, as it should be.
Why isn't everyone, especially people without degrees, trying very hard to get federal jobs then?
That is true. Perhaps because of the boring nature of their jobs (airport screeners) and the job security is going down in the era of Trump, maybe people are rethinking.
They are. Not you?
Gov't bureaucracies are clever enough to know that pay surveys are always being run on them. The best way to find out what employees are earning is to look at a pay period of a division in a department or agency and see what's being paid to each individual. Later, if allowed, the individual employee's background can be obtained. Then match credential to salary - voila'
Anecdotally, I understand teachers are financially incentivized to get higher degrees (appreciate these aren't federal gov workers). Figure 6 below may be relevant data, but it also shows higher base salary for those w/o bachelors vs those with.
https://nces.ed.gov/programs/coe/pdf/2023/clr_508.pdf
What is "good government"? It seems to be a rare animal.