Wages in the Federal and Private Sectors

Abstract

This study addresses the legal principle of "comparability" that ties federal sector wages to wages in the private sector. We first examine comparability by determining if workers with similar observed and unobserved characteristics receive the same wages in each sector. Estimates based on data from the 1982 CPS indicate males may have a slight wage advantage in the federal sector. Female workers earn substantially more in the federal sector than inthe private sector. We then develop a choice-theoretic approach to the issue of comparability by applying a simple supply argument: a cost-minimizing federal employer would pay wages no higher than necessary to attract employees and eliminate queues for federal jobs. If the market pays equalizing differences for unique attributes of each sector, then this approach is not consistent with wage equality between the sectors. A model jointly determining sectoral attachment and wage offers is estimated by maximum likelihood. Results suggest the elimination of queues will require substantial wage reductions for both male and female federal employees.