Government Workers Very Well-Paid: Report

Published November 1, 2006

Growing evidence shows government employees are highly compensated as compared with their counterparts on private payrolls.

The U.S. Bureau of Labor Statistics reports that in 2005 median weekly earnings for full-time government workers averaged $758, compared to $625 for those in the private sector. Those figures are from the Current Population Survey.

Another view can be seen in the Bureau of Labor Statistics National Compensation Survey, which reports that in the first quarter of 2006 the cost of compensation per hour worked for state and local government employees averaged $36.97 compared to $25.09 for private industry workers.

Cost of Compensation per Hour Worked, 2006
Compensation Private Industry State & Local Government Percent Difference
Wages & Salary $17.73 $25.01 41.0
Benefits $7.36 $11.96 62.5
Total $25.09 $36.97 47.3
Source: Bureau of Labor Statistics National Compensation Survey

That’s an overall difference of 47.3 percent. The difference in costs of benefits is much greater than the difference in wages and salaries.

Fringe Benefits Disparity

The hourly cost of wages and salaries is $17.73 on private payrolls compared to $25.01 in state and local government (a difference of 41 percent), while the hourly cost of benefits is $7.36 in private industry compared to $11.96 in state and local government (a difference of 62.5 percent), according to the National Compensation Survey.

There are undoubtedly many factors that contribute to those differences.

Median Weekly Earnings of Full-time Wage and Salary Workers, 2005
Private Sector $625
Public Sector $758
Federal Government $882
State Government $733
Local Government $738
Source: Bureau of Labor Statistics Current Population Survey

One that doesn’t get enough attention is the unusual power of public-sector unions. Most states require government agencies to collectively bargain with unions representing their employees, but public-sector unions, unlike private-sector unions, also play a big role in electing the boss.

Unions of public employees, particularly at the local government level, have an extremely high level of motivation to influence elections.

In addition, in many areas of the country Election Day for local government officials is different from the general election date. Turnout for local elections is usually quite low, giving local government unions a greater chance to influence election outcomes by rallying members and their families to vote.

High Taxes, Higher Raises

Consider two households–one with a private-sector worker and one with a local government employee–with equal incomes of $40,000. Assume state and local taxes are approximately 10.5 percent of income.

If the local government imposes a 4 percent tax increase to fund a 5 percent pay increase for government employees, both families face an increased tax burden of $168 ($40,000 x .105) x .04 = $168.

Mean Weekly Earnings, 2005
Private Sector $738
Public Sector $811
Difference $ 73
Percent Difference 9.9
Source: Union Membership and Earnings Data Book (2006 Edition)

But the government employee’s household would also anticipate a $2,000 pay hike ($40,000 x .05 = $2,000), for a net gain of $1,832. A $1,832 gain likely would provide greater motivation to walk precincts, stuff envelopes, contribute money, and turn out on Election Day than the expected $168 increase in taxes.

Public-sector compensation also exceeds private-sector compensation because most pay scales in the public sector include automatic step increases based solely on longevity. Control of the internal politics of most labor unions, and therefore their collective bargaining positions, is thus dominated by the interests of senior employees. As a result, the union’s negotiating position is weighted toward the interests of older workers, which tends to increase the number and value of steps at the high end of the scale.

Workers at the Top

Because most public retirement systems base benefits on earnings during the final years of employment, this arrangement provides incentives for senior employees to stay on the job longer, increasing the number of employees at the top of the pay scale while making it difficult to fill vacancies in entry-level positions.

Mean Hourly Earnings, 2005
Private Sector $17.97
Public Sector $20.22
Difference $ 2.25
Percent Difference 12.5
Source: Union Membership and Earnings Data Book (2006 Edition)

Another factor is that managers in the private sector are under pressure to ensure their labor costs are in line with market forces. Few managers in the public sector are subject to the same pressures.

Yet another factor is the role, or lack thereof, of state associations of cities, counties, and school boards. Personnel costs make up 70 to 80 percent of expenditures at the local government level, yet organizations representing elected public officials have done almost nothing to develop programs to control those costs.

David Denholm ([email protected]) is president of the Public Service Research Foundation, an independent, nonprofit organization that studies labor unions and union influence on public policy.