Are Public Employee Salaries and Benefits Out of Line with the Private Sector?

by Ron Snell

On February 1, USA Today reported on the substantial and growing gap between average compensation in the public and the private sectors.   A little bit of analysis, though, suggests that the claim is highly misleading.

It's true that if, like USA Today, you compare average public employees' compensation with average private sector compensation – meaning the average of everyone in one category or the other – you see a startling difference.  Average employee compensation is 50 percent higher in the public sector than in the private sector, according to the Bureau of Labor Statistics.

Table 1.  Average Compensation, Private and Public Sectors, September 2007

	Average Hourly Salary	Average Hourly Benefits	Total
Private Sector	$18.42	$7.66	26.09
Public Sector	$26.26	$13.24	39.50

Averages, of course, bring together a lot of disparate information.  For the private sector, the CEO of Microsoft is lumped with the guy who flips burgers at McDonald's, and for the public sector, the director of your state medical school is averaged with the lady who flips burgers at the Capitol Cafeteria—if it hasn't been contracted out.  When the numbers are broken apart by what people do, they look different.

Table 2.  Average Compensation, Private and Public Sectors, September 2007,

By Category of Employment

	Average Hourly Salary	Average Hourly Benefits	Total
Private Sector Professionals	$33.02	$13.80	$46.82
Public Sector Professionals (education and legal)	$33.88	$14.06	$47.94
Private Sector Service Employees	$11.09	$4.61	$15.70
Public Sector Service Employees	$18.45	$12.29	$30.74

As table 2 shows, salaries and benefits for professionals vary only a little between the public and private sectors, with public employees having a 2.4 percent advantage.  That matters a lot in any comparison.  The employees I count as professionals in Table 2 – instructional employees in K-12 education and higher education plus judicial and legal employees --  make up 35 percent of all public employees (and this excludes other professionals working for governments, for whom there's no good count).   This very high percentage of professionals in the public sector, as compared with the private sector, weights average public sector salaries toward the high end.

Also, there's a significant difference in compensation for lower-paid employees in the public and private sectors.  For service employees, the public sector advantage remains in the 50 percent range. 

Some of the difference in service workers' compensation is explained by benefits, which are more widespread for lower-paid workers in the public sector than in the private sector, where some service employees may have no benefits other than Social Security, workers' compensation and unemployment insurance.  The public sector tends to provide pensions and health insurance to all employees. 

Part also is a higher average salary.  What that means about specific occupations is hard to say, since the Bureau of Labor Statistics (the source of these numbers) does not categorize public sector employees in as fine detail as private sector employees.  It's impossible to make an apples-to-apples comparison, and the Bureau in fact warns against comparing compensation costs across the public and private sectors.  Still, breaking the numbers apart to the extent possible is a guide for further questions about comparable pay, and it appears that those question should focus on service-employee compensation.

For further information and source data, see Bureau of Labor Statistics report on public and private compensation in 2007 and Public Sector employment data.

Comments

[Damon]

A point you alluded to: private sector employee compensation occupies a much greater spectrum than public employees. With the exception of a few sports coaches at large state schools, no one on the public rolls is making millions. Public sector jobs may offer a comfortable living, but I would guess that the people who work in the public sector (especially professionals) do so for other reasons besides compensation alone.

[Informed_Roch]

This study is a perfect example of tax dollars used to support the incredibly self-serving perpetuation of the government creating unnecessary fiefdoms and then spending as much as the uninformed masses will tolerate until all those back-loaded pension costs bankrupt the younger generation.

Have you people no shame?