Federal Employees Earn 30 to 40 Percent More than Private-Sector Workers, Study Finds
August 9, 2010 - 6:54 PMFederal employees earn 30-40 percent more money than their private sector counterparts on average, a study from the conservative Heritage Foundation finds. These pay discrepancies persist despite the recession, unlike in the private sector where unemployment is 9.5 percent and wages have steadily declined.
The report comes on the heels of a new unemployment numbers showing another month of anemic job growth in the midst of President Obama’s “Recovery Summer” tour, where he is highlighting what he calls signs of economic recovery.
Those still employed are better off working for the federal government, the Heritage report found, where they could earn salaries 22 percent higher than their privately employed peers and benefits that are far more generous than those in the private sector.
The report found that in the private sector, wages are closely tied to productivity.
“Businesses that pay wages below the associated level of productivity lose quality employees to competitors paying higher wages,” the report stated. “Businesses that pay workers more than their productivity lose customers to competitors with lower prices because of lower costs.”
While the government portends to peg its pay rates to market wages, in practice federal wages often bear little resemblance to private sector wages in similar jobs.
The biggest culprit, according to the report, is the federal General Schedule (GS) pay scale, which determines the salaries of 70 percent of the federal workforce. Each of the 15 GS pay grades has 15 incremental steps, each earning slightly higher wages with wide ranges in pay depending on the step. For example, a college-educated, entry-level GS 7 position earns an average of $42,209 at step one. By step 10, a GS 7 level employee would earn an average of $54,875 per year, not counting benefits.
Advancement is achieved through seniority, with some positions offering so-called career track advancement, where an employee is promoted annually to the next pay grade until they reach the maximum. Commonly, this is done over a three year period – from a GS 7 grade to a GS 9 grade, for example. Once the employee reaches the maximum pay grade for their job, they can then advance through the steps based on seniority, to a maximum of 10.
Federal employees can be promoted to the next step faster based on good performance, the report noted, a metric that is not synonymous with productivity.
On average, federal employees earn 60 percent more than the average private sector employee – $79,000 vs. $50,000 respectively. Add in retirement and health care benefits and that gap grows to 85 percent.
Some of that gap is due to the fact that some federal jobs, like IRS agents and customs officials, are unique to the federal government, the study notes, so there is no private sector equivalent to compare them too.
Another factor that drives the raw average up is the fact that the government employs a higher percentage of college-educated Americans than the private sector does. Only 59 percent of private-sector workers have high school diplomas compared to the 89 percent of federal workers who do. Federal workers, the study noted, are also an average of five years older than private sector ones.
“A more skilled workforce naturally earns more than a less skilled one; education and experience increase workers’ productivity,” the study notes.
When Heritage controlled for similar occupations and employee characteristics, however, it still found a pay gap of 22 percent between federal and private sector employees.
“The federal pay system gives the average federal employee hourly cash earnings 22 percent above the average private worker’s, controlling for observable skills and characteristics,” reads the report.
“Including non-cash benefits adds to this disparity. The average private-sector employer pays $9,882 per employee in annual benefits, while the federal government pays an average of $32,115 per employee,” the study found.
The Heritage report also found that government jobs – in addition to being more lucrative – are almost impossible to lose. Despite a national unemployment rate that remained at 9.5 percent, federal employment has grown during the recession.
“Federal employees enjoy job security irrespective of the state of the economy,” the study documented. “Since the recession began, federal employment has risen by 240,000 – 12 percent. The unemployment rate for federal employees has only slightly risen from 2.0 percent to 2.9 percent between 2007 and 2009.”