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InsiderOnline Blog: February 2011

However You Measure, Federal Workers Are Overpaid

Economists who compare federal and private sector pay have typically found that federal workers earn between 10 percent to 20 percent more in wages. But does that really mean federal workers are overpaid? These studies control for things like age, education, and experience. But it’s possible, write Andrew Biggs and Jason Richwine, that those studies aren’t capturing important differences between the groups such as intelligence, motivation, and specific training. Biggs, of the American Enterprise Institute, and Richwine, of The Heritage Foundation, point out, however, that there are alternative of ways of assessing the question and those methods all lead to the conclusion that federal workers are overpaid.

For example, a number of studies have found that when private sector workers lose their jobs and then join the federal workforce they end up earning more than private sector workers who find another job in the private sector. In 1988, Alan Krueger of Princeton found the advantage for these workers to be 12 percent. A forthcoming Heritage Foundation report that updates Krueger’s analysis finds the federal premium to be 8 percent. Because this method compares the earnings of the same individuals over time, rather than different individuals at one point in time, it naturally controls for the factors that are hard to measure like intelligence and specific skills.

Another piece of evidence that federal workers are overpaid: Federal workers are much less likely to quit their jobs than are private sector workers. This trend has held steady despite the fact that newer federal workers are less likely to experience the job lock of a defined-benefit pension plan. Quit rates for federal workers hired after 1984 (when a defined-contribution element was introduced into federal pensions) are 30 percent lower than for similar workers in 1984.

For more on federal pay, see “Yes, They’re Overpaid,” Weekly Standard, February 14, 2011.

Posted on 02/08/11 04:11 PM by Alex Adrianson

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