Salem Statesman Journal editor Dick Hughes just published a lengthy column asking whether public or private sector employees are better compensated. He cites studies that reach contradictory conclusions, depending on their assumptions, and then answers his question by stating, “Who knows?”

That answer must be challenged because he somewhat dismisses the apparent fact that “…public employees make a whopping 45 percent more” by saying, “One common finding…is that government has a larger proportion of higher-educated workers.”

While higher education may be a big determinant of government compensation, especially in unionized fields such as public school teaching, it means less in the private sector. In the private sector competence can trump credentials. For example, many tradespeople are compensated well above some of their college-educated counterparts because they can fix your plumbing when the pipes freeze, or correctly wire your house so it doesn’t burn down.

Finally, in your opinion, which highly degreed politicians and public employees are worth what we pay them? The list may change depending on whether you’re Democrat, Republican, or whatever, but you get my point.

When we freely purchase services from private sector employees, they earn roughly what they produce. When politics and union bargaining determine pay levels, public sector employees are often paid more than their private sector counterparts. Case closed.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

 

2 Responses to “The Public vs. Private Sector Compensation Conundrum”

  1. Bob Clark December 13, 2013 at 4:53 pm #

    What is also missing is public employees should receive lower rates of compensation than private employees in comparable positions, because there is a risk premium to accepting private employment rather than public employment. Once a public employee comes off probation in most cases the employee is set for life, as government is very insulated from firing or laying off its employees. When it does layoff employees because of an economic downturn, it often does so through attrition or slashing vacant positions.

    In my study of School and local government employee compensation, what I find is public employees make similar wages and salary as comparable private sector employees; but the side benefits of health care and retirement is far in excess of those in the private sector. Portland Public Schools adds these benefits at a rate of 55% plus to base wage and salaries. TriMet is out of this world mad, as it adds these benefits at a rate of over 100% to base wages. Because these over generous benefit payouts, public employees are actually probably making 20% more than comparable private sector employees. This may be less so at the state professional level where benefits run closer to 38% of base wage and salary.

    • Steve Buckstein December 17, 2013 at 6:44 pm #

      Thanks for the additional input on this subject, Bob. The lower risk premium for public employment is a significant benefit for many people and definitely should be taken into account when comparing public versus private sector compensation.

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