The public-private pay divide

May 12, 2014

Are public workers overpaid in relation to private workers? It’s a big question. There are conflicting schools of thought. On the left, Ezra Klein has asserted there is “[a] lot of jealousy toward public employees, most of it powered by an impression that public employees get more money for less work.” On the other end of the political spectrum, the right-leaning Heritage Foundation claims that public employee benefits, i.e. lifetime pensions, are undercounted. A full accounting would show that public-sector workers are more highly compensated than those in the private sector for equivalent work.

There are many ways to compare compensation data for public and private employees. Liberals often compare pay and benefits by level of education:


This widely cited data from a study by the Economic Policy Institute shows that from employees with less than a high school education to those with higher than a bachelor’s degree, private workers earn more. But when you carefully study the EPI analysis, it shows that the study compares state and local government pay to private sector pay for companies over 100 employees (page 4). Many public workers are employed by small government bodies like townships and special districts. It is not clear that this is the best framework for comparison.

Compensation data from the Department of Labor shows that public workers earn more than private workers. Public workers earned an average total compensation of $42.89 per hour in December 2013 (BLS):


Private workers earned an average total compensation of $29.63 per hour in December, 2013 (BLS). Note how “Management, professional and related” employees earned almost identical compensation in the public and private sector.


The cost of underfunded public pensions is not factored into public worker pay. It’s unclear if rising pension costs will increase total pay for public workers or cause suppression in wages and salaries.

Bureau of Labor Statistics data compiled by the National Association of State Retirement Administrators shows private sector wages increasing at about twice the rate of public sector wages since 2010:


But benefits for state and local government employees have showed higher increases since 2005 (except for 2010 through 2012) according to NASRA’s analysis:

benefit costs

The public sector, employing 22 million people, is 16 percent of the U.S. workforce of 137 million. Unlike in the private sector, there are no productivity measures to determine whether public sector compensation is creating more benefits for citizens. There is a desire for government to provide efficient services and use tax revenues wisely.

The debate about public versus private-sector wages is an important one. The data should be analyzed with as many metrics as possible. Taxpayers have a right to know if the government is operating as efficiently as the private sector.

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Issues that affect the public sector have usually already hit the private sector. Private sector pensions are nearly a thing of the past and public sector pensions are heading in the same direction. The bottom line is that the pension issue at the core is a debt issue and dealing with debt is typically very painful. http://publicretirementplanners.blogspot .com

Posted by SeanTankarian | Report as abusive