A May 2006 bulletin from the Cato Institute claims “Federal Pay Outpaces Private-Sector Pay.”  Below the Cato’s graph, appearing in the bulletin, asserts that by 2004, the average federal employee is compensated nearly twice as much as the average private sector worker when benefits are included.

Really?  That’s news to me.  As a federal employee and a recent college graduate with an Economics degree, most of my friends working private sector jobs in industries like consulting, finance, and marketing are making a lot more than I am ⎯ to the tune of $20,000 more per year, not including signing bonuses. 

The Cato Institute’s study, at first glance, seems to dispel the widely held belief that that it’s more profitable for “white collar” professionals to enter the private sector.  Anecdotal evidence points to the contrary.  Think about prosecutors who make a name for themselves at the Department of Justice only to leave for a higher paying position at a big-name private law firm; Food and Drug Administration Officials that take jobs for biotech companies; or members of the military who leverage their government experience to work for defense contracting firms like Northrop Grunman for higher compensation.

Given my difficulty finding an affordable apartment, it’s hard to believe I’m making twice as much as anyone.  Maybe the Cato Institute is missing some data?

After some digging, I found out that the occupational make-up of the federal workforce (something that the Cato report doesn’t explore) is very dissimilar to the private sector. The federal government maintains a higher percentage of “white-collar” jobs⎯higher-paying professional and management-related occupations⎯than the private sector does. The differences between the two workforces become clear by looking at the table below from the Office of Personnel Management (OPM) with 2004 data, which displays the distribution of occupations for the two groups in percentages.

What’s provocative about this information is that 90% of federal employees occupy “white collar” jobs.  In contrast, only 66% of workers in the private sector occupy these positions.

These percentages make sense intuitively if you think about all of the attorneys employed at the Department of Justice, the economists at the Department of Labor and the Bureau of Economic Analysis, and the scientists and policy makers at the Department of Agriculture, Defense Agencies, and the Environmental Protection Agency.

By not accounting for the disparity in the number of “white collar” positions between federal employees and private sector employees, the Cato report, in essence, compares apples to oranges. A more accurate way to compare the salaries of the two populations would be to compare the salaries of federal employees to “white collar” private-sector occupational wages.

When comparing data on average hourly wages from the Bureau of Labor Statistics (BLS) for “white collar” private sector employees to federal wages published by OPM, the wage disparity disappears. As you can see from the chart below, federal pay only began to outpace the private sector in 2004.

The Cato Institute report does make a valid point in suggesting that “federal compensation has grown more rapidly than private compensation in recent years.”  While the private sector compensation costs have remained steady, the government has continued to increase its workforce’s compensation.

Additionally, the report remarks that “…comparison studies typically look just at wages and don’t consider the superior benefits paid by the government…retirement health benefits, a pension plan with inflation protection, and a retirement savings plan with a very generous match.”

More astutely, the Cato report acknowledges the work-life benefits enjoyed by most federal employees, including, “…generous holiday and vacation schedules, flexible work hours, training options, incentive awards…union protections, and a usually more relaxed pace of work than private workers.”

My workweek is 40 hours.  If I work more than 40 hours, I get time and a half.  My friends in the private sector work until the work is done regardless of how long it takes.  They aren’t paid overtime pay, and they certainly don’t get holidays like Columbus and Veteran’s day.

But it's tough to gauge the value of benefits.  How does one assign a value to the perks of the federal job that the Cato Institute lists above?  Or the perks that private employees receive like corporate parties, unlimited free coffee (a big issue in federal offices), sporting event tickets, nicer facilities, etc?  Even when attempting a straight economic analysis of only those benefits fetching a monetary value like retirement accounts, the difficulty of comparing 2 million federal employees to 100 million private sector employees remains, especially given the fact that a much higher percent of white-collar professionals work in the federal government. 

In the end, the Cato Institutes's study is important in highlighting difference between the federal and private sector, but given the difference between the two populations, the assertion that feds make twice as much as the private sector is not reliable.  They should revisit the study and tease out individuals in the non-profit world who's low wages drag down the overall wage average and isolate only white-collar jobs for the comparison.  Only then can an accurate side-by-side comparison become valid.