Here’s a Pay Gap Worth Being Concerned About

We’ve heard about the alleged “wage gap” between men and women, but what about the real pay gap between private and public sector employees?

An updated report from the nonpartisan Congressional Budget Office shows there is a growing gap between the compensation earned by federal and private employees with the same qualifications.

After accounting for differences in education, experience, and occupation, the report concluded that the federal government provides its workers with 17 percent more compensation than similar employees earn in the private sector.

That’s up from a reported 16 percent gap five years ago.

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The current 17 percent differential takes the form of 3 percent higher pay and 47 percent higher benefits, on average, for federal government employees.

With 2.2 million federal civilian employees and $215 billion in federal compensation expenses in fiscal year 2016, the federal government’s pay differential costs taxpayers $31 billion per year.

That means the government could save an estimated $31 billion a year by bringing federal compensation in line with the private sector.

Under other compensation comparisons, the gains would be even larger.

The Heritage Foundation estimates a 22 percent pay differential and a 30 to 40 percent total compensation differential. Meanwhile, the American Enterprise Institute estimates a 14 percent pay differential and a 61 percent total compensation differential.

With various studies showing such a large compensation differential for federal employees, the government should be able to attract and retain some of the best and brightest workers.

But the way the compensation differential plays out actually achieves the exact opposite. That’s because the federal government massively overcompensates low-skilled workers while undercompensating, or penalizing, highly-skilled ones.

Federal employees with no more than a high school degree receive a 53 percent compensation differential (a 34 percent pay difference and a whopping 93 percent difference in benefits).

Meanwhile, workers with a professional or doctoral degree actually receive a compensation penalty of 18 percent (24 percent lower pay and 3 percent lower benefits).

This setup allows the federal government to attract and retain lots of lower-skilled workers, but it’s hard to attract and retain highly-skilled workers.

And that’s the exact opposite of what the government needs. Compared to the private sector, the federal workforce has three times the concentration of workers with professional or doctoral degrees and only one-third the concentration of workers with a high school diploma or less.

This kind of anomaly is possible only because the government operates outside the marketplace.

Such glaring gaps would never stand in the private sector where workers’ compensation is based on their productivity, and where employers who under or overcompensate employees lose out to competitors and may go out of business.

Policymakers should bring federal employee compensation in line with the private sector, including pay, retirement, health care benefits, paid leave, and hiring and firing procedures.

Not only would such reforms make the federal government more competitive with the private sector—allowing it to attract and retain the best and brightest workers—but it would also save a pretty penny for the taxpayer.

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