Excessive Government Employee Compensation in the United States

Number 21

The Excess Cost of
Government Employment in the US
Contents:
(All sections are on this page)
Government Employees: Paid More than Private Workers
Government Employee Compensation is Rising Faster
The Advantages of Government Employment
Government Employees are Paid Above Market Rates
Government Labor Productivity is Below Market
Excess Government Employee Compensation is Expensive
The Solution is Competition

GOVERNMENT EMPLOYEES: PAID MORE THAN PRIVATE WORKERS

In 1991:

Average private employee compensation was $31,789.
Average state and local government employee compensation was $35.054 --- 10.3 percent higher than that of the average private employee.
Average federal government employee (non-military) compensation was $46,789 --- 47 percent higher than that of the average private employee.

GOVERNMENT EMPLOYEE COMPENSATION IS RISING FASTER

From 1980 to 1991:

Average state and local government compensation (wages and benefits) rose nearly $5 for every $1 of private employee increase (inflation adjusted) from 1980 to 1991.
Federal government non-military employee compensation rose $5 for each $1 of private employee compensation increase.

THE ADVANTAGES OF GOVERNMENT EMPLOYMENT

There are a number of advantages to government employment. Below 17 are listed. All advantages do not exist in all government employment.

1. More generous paid fringe benefits.

2. More Paid Vacation Days and Holidays:

3. Federal Income Tax Free Value of Excess Paid Benefits:

4. Larger annual compensation increases:

5. Greater job security: Government employees have superior job security.

6. Lower productivity:

7. More paid personal days off:

8. More sick time and other paid time off:

9. Work weeks with fewer hours:

10. State Income Tax Free Value of Excess Paid Benefits:

11. Generous severance pay.

12. Earlier retirement.

13. Unused sick leave credit at retirement:

14. Expensive defined benefit retirement programs.

15. Routine pension benefits increases.

16. Paid Retiree Health Care:

17. Exemption from State Income Taxes:

GOVERNMENT EMPLOYEES ARE PAID ABOVE MARKET RATES

An excess value of government employment has been calculated using five more readily quantifiable advantages of the 17 government employee advantages: ([1] more generous fringe benefits, [2] more paid vacation days and holidays, [3] federal income tax free value of excess paid benefits, [4] higher compensation increases and [5] greater job security). The excess value of government employment is the amount by which compensation for government employees exceeds that of comparable private employees.

Over a 40 year career:

The state government employee would receive 38.9 percent greater compensation than the private employee who started at the same wage rate. The government employee's compensation would exceed that of the private employee by nearly $438,000.
The local government employee would receive 30.5 percent greater compensation than the private employee who started at the same wage rate. The government employee's compensation would exceed that of the private employee by nearly $344,000.
The excess value of federal non-military employment is estimated at 50.8 percent. This assumes that a federal employee's starting salary is equal to that of a comparable private employee. The excess value would be $586,000 for the hypothetical federal employee
Applying the factor above (50.8 percent) to two other federal pay compensation studies yields the following results:
- If it is assumed that a federal employee's starting salary is 3.1 percent above that of a comparable private employee then excess value would be $640,000 for the hypothetical federal employee --- a federal employee premium of 55.5 percent.
- If it is assumed that a federal employee's starting salary is 22.3 percent below that of a comparable private employee (the President's Pay Agent "pay gap"), the excess value would be $261,000 for the hypothetical federal employee --- a federal employee premium of 17.2 percent.

GOVERNMENT LABOR PRODUCTIVITY IS BELOW MARKET

It has been estimated that there are too many government employees. Further, private companies working for government routinely provide public services with fewer employees than government agencies. If all states achieved the labor productivity of the most efficient state, and the proposed reduction in federal employment were fully implemented, then substantial savings would occur. This productivity deficit increases the excess value of government employment to approximately 70 percent.

EXCESSIVE GOVERNMENT EMPLOYEE COMPENSATION IS COSTLY

It is estimated that in 1991 the excess cost of government employment in the United States was more than $240 billion --- more than the federal deficit. This is more than $2,500 per household.

THE SOLUTION IS COMPETITION

The problem is lack of competition: The incentives of the competitive market, which operate in the private employment market, are largely absent in government. The result is higher than market costs, which unnecessasrily increases government spending and taxation.

Two strategies can solve the problem:

1. Minimization of government employment, so that government employment would be limited to inherently government functions (policy functions). Non-inherent functions would be produced by competitive arrangements by the private sector.

2. Regulation of remaining government employee compensation and staff sizes. Regulation should be applied to employment in government policy functions. Regulation should also be applied in functions not yet converted to competitive incentivesCompensation should be managed by managing employee turnover, while staff sizes should be limited to the levels achieved for the most efficient governments.

SOURCES:

Wendell Cox and Samuel A. Brunelli, "America's Protected Class: The Excess Value of Public Employment," The State Factor, American Legislative Exchange Council (Washington, DC: June 1994)

Wendell Cox and Samuel A. Brunelli, "America's Protected Class III: The Unfair Pay Advantage of Publc Employees" The State Factor, American Legislative Exchange Council (Washington, DC: April 1994)

FEDERAL EMPLOYEE PAY IS ABOVE MARKET: US Congressional Testimony