D.C. Think Tank Claims Reduction in Federal Compensation Could Save $77 Billion Per Year

NEW ORLEANS, La. – The American Enterprise Institute, a D.C.-based think tank, recently released a working paper which finds that federal employees receive a salary premium of 14 percent, a benefits premium of 63 percent, and extra job security worth 17 percent of pay. That makes the total federal compensation premium approximately 61 percent.

The study’s authors estimate that if federal employee compensation was reduced to private levels, taxpayers could save $77 billion per year.

A 2009 study by the Bureau of Economic Analysis, a branch of the U.S. Department of Commerce, claims that federal civil servants earned average pay and benefits of $123,049 while state and local government employees earned average pay and benefits of $69,913. The BEA found private workers, by comparison, made $61,051 on average in total compensation, indicated an even greater difference between compensation premium of 101 percent.

According to LouisianaSunshine.org, the average pay for public employees in Louisiana is $44,341, while the average salary for all occupations is $37,980.

The BEA website highlights four factors that contribute to the wage disparity.

First, private sector employee salaries range from minimum wage workers to the highest paid CEOs, while members of the federal government’s civilian workforce are concentrated in professional, administrative, and technical occupations.

Second, there has been a shift towards higher skilled federal employees, while low-skilled and low-paid workers have been outsourced to private companies.

Third, federal government employees receive higher benefits in the form of pensions and health insurance contributions than private employees, with many private employees receiving no benefits.

Lastly, federal compensation estimates include large payments for unfunded liabilities. For example, in 2006 the value of payments for unfunded liabilities were $28.6 billion or 10.7 percent of total federal compensation.

Cato Institutes’s Chris Edwards claims that the BEA’s first criteria misses the point, since “the federal workforce has always been full of lawyers and scientists.”

Additionally, Edwards claims that, “Total wages and benefits paid to executive branch civilians amounted to $230 billion in 2010,” while over the last decade, “compensation of federal employees rose much faster than compensation of private-sector employees.”

On the contrary, John Berry, Director of the U.S. Office of Personnel Management, claims that headlines purporting a gap between public and private employees are comparing “apples to oranges.”

He states that reports from the Cato Institute and other organizations “look only at gross averages,” including service workers and entry level positions. This, he contends, reduces the private sector’s average pay “in comparison to the federal average, which does not include many of the subcategories in its workforce.”

Additionally, Berry purports that the federal workforce has become more specialized.

“Thirty years ago, over 22% of our workforce was in blue collar jobs. Now that percentage has dropped by half while the percentage of IT and Health professionals has doubled.”


Robert Ross is a researcher and social media strategist with the Pelican Institute for Public Policy. He can be contacted at rross@pelicanpolicy.org, and you can follow him on twitter.