Are Federal Workers Overpaid? The CBO Weighs In

Remember a while back, during the Wisconsin governor Walker fiasco, the debate that raged regarding government workers and their wages with respect to private sector workers? You had right wing economists arguing that federal workers were indeed overpaid and left wing economists arguing the opposite. An honest observer might have found it difficult to know who was right.

Well now, the CBO has weighed in on the topic and has come down on the side of right wing economists:

Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees also varied according to workers’ education level.

Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
Federal workers whose education culminated in a bachelor’s degree averaged 15 percent higher total compensation than their private-sector counterparts.
Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.
Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.

Of course I, a huge fan of Andrew Biggs at AEI, knew this long ago. For more on Andrew Biggs research on this see here, here and especially here.

49 Responses to “Are Federal Workers Overpaid? The CBO Weighs In”

  • CBO isn’t addressing Wisconsin because they are looking at federal employees only, not state and local. The previous discussion was about public sector employees that can unionize and negotiate compensation via the union. Federal employees for the most part can’t do that but state and local employees can. EPI published a study that looked at state and local only, not federal. These showed that overall public sector compensation was less than than private when you correct for education. CBO is not contradicting the prior studies because it’s not looking at the same people.

  • Sure, but the Walker discussion was the main cause of the general federal pay discussion.

    For an example of left leaning economists arguing that federal workers are NOT overpaid, see here.

    And given that the “Economic Policy Institute” is basically an arm of the unions, I doubt any study they produce can be given much weight. But even on that issue, Andrew Biggs takes them head on.

    I encourage readers to read the study Jon quotes and the Andrew Biggs responses above. Atleast on Federal Pay, Andrew Biggs is 1-0 against liberals. My money is on him for this second round. 🙂

  • I don’t regard union association as a put down. Unions are democratic institutions. I like democracy. Not everybody does of course.

    Corporations aren’t democratic. Oligarchic, or perhaps you could call them tyrannical. AEI is an arm of corporations. You prefer an institution that is an arm of tyranny or an arm of democracy?

    AEI is fighting global warming science for corporations. Fighting to protect Goldman Sachs. Fighting for fracking. Fighting for the rich. Fighting democracy. Having success, that’s for sure.

    You’re just wrong on CBO. It says nothing about Wisconsin and Scott Walker. But I won’t try to explain.

  • Then they are both equally biased, at the very least. And we just saw what happened when they were both equally biased with the federal pay discussion…

  • Btw, in case I wasn’t clear in my first comment above, I agree with you that federal pay is not the same thing as state pay or the Walker/Wisconsin incident. I’m saying they have SOME relationship but more importantly, it was the Walker incident that spurred the federal pay discussion.

    Though re-reading what I wrote in the original post, I could see how one could get a different impression (damn ESL!).

  • Going through my blog reading now and came upon this post (click here). It’s interesting that the CBO, in conducting the study above, actually consulted with both Andrew Biggs of AEI and members of EPI, the same organization you quote above. And they came down on AEI’s method of assessment – and pretty much completely ignored the EPI’s method.

    This should tell you something.

  • Yes, EPI is biased on behalf of the suffering of people and of democracy. AEI is biased on behalf of the suffering of the rich, corporations, and tyranny. Both are biased.

    Your claim is that the Walker controversy spawned a large discussion about the compensation of federal employees. Yet as evidence you point to a liberal article written prior to the Walker controversy. Walker’s early 2011 controversy spawned a discussion back in 2010?

  • We have a clear test of bias above: the CBO consulted BOTH EPI and AEI in their study and found the AEI’s method much more accurate. In fact, they completely ignored the EPI’s method.

    That tells you everything.

  • CBO contacted EPI and AEI regarding an issue unrelated to the Wisconsin union struggle and sided with AEI. I don’t think this is all that significant. CBO says this is a very difficult to quantify, so the conclusion is very tentative anyway.

    EPI’s thoughts are worthwhile on this. They expect CBO uses a discount rate of 5%. Meaning the present value of pension benefits has to be really high to cover obligations given the assumption of low returns for pension funds. This makes the present value of compensation really high. Do you expect your 401k to grow at a mere 5% rate? If federal pension funds can be managed to where they return something greater than 5% then the calculation for pension compensation changes with it.

    EPI says that the wage compensation federal vs private is about the same. I tend to think federal employees get better health care and other non-wage compensation, so probably EPI would agree that federal employees are paid more generally. They just disagree with the magnitude of the difference.

    So it’s not clear to me that EPI has ever denied that federal employees are paid more than their private sector counterparts, but if you know differently let me know.

  • Biggs addresses that here:

    One element in this conclusion is in how you “discount” future retirement benefits to calculate their value to workers today. We and CBO both assumed that if a future benefit was guaranteed, you should discount it using the market interest rate on guaranteed assets. You’d use that lower interest rate even if the government funds its benefits using risky assets with higher expected returns, because what you’re valuing is the benefit, not the government’s strategy for financing it.

    If anything, I think CBO may not have gone far enough. The 20-year Treasury yield today is around 2.6 percent. CBO assumed a 4 percent Treasury rate, then added 100 basis points to account for the fact that federal pensions aren’t as guaranteed as Treasuries. I think a 100-basis point risk adjustment is too much for already-accrued federal pensions, which seem almost certain to be paid even if the terms by which future benefits are earned change. The value of benefits is very sensitive to the discount rate, so using plausible assumptions, the federal compensation premium today could be even larger than what CBO found.

    Btw, as Biggs noted here, there are other benefits that federal employees receive that even the CBO left out. So on net, the CBO probably underestimates the true benefit difference.

  • the federal compensation premium today could be even larger than what CBO found.

    And it could have been smaller. These are very tenuous calculations according to CBO, whereas wage comparisons are reliable.

    Did EPI ever deny that federal employees were paid more in the past?

  • I don’t know about EPI on federal pay per se. But again, their involvement in this discussion (you brought em up first, not me) has to do with the CBO’s preferring AEI over EPI. I think that is still valid.

    And meaningful.

  • The reason I brought up EPI is because you and I debated this issue following Walker and the basis for my claim that public sector employees were not paid more when you correct for education, etc was EPI. If you were thinking of that debate we had, then you were saying EPI was mistaken. Perhaps you had in mind other discussions, in which case you are right that EPI is irrelevant.

  • I think federal workers are indeed overpaid. Would I take a federal job?
    Probably yes!

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