Are Public-Sector Employees 'Overpaid' Relative to Private Sector Employees? An Overview of the Studies

Abstract

The laws eliminating or severely restricting the collective bargaining rights of public-sector unions passed since 2011 are one of the most important developments in both workplace law and politics in recent memory. Among other things, public-sector workers now comprise more than half of all union members in the U.S., and such unions are a major constituency of the Democractic Party. Proponents of these new laws often justify them at least in part by claiming that public employees are overpaid relative to private sector employees. This paper focuses on a large and representative selection of studies comparing the compensation of public- and private-sector employees. It reviews their findings and methodology, noting the assumptions and data-sets used. It also draws some conclusions as to the policy implications of the works discussed herein.

In sum, a majority of studies have found that public workers on the whole are paid somewhat less than comparable private sector employees, but there are significant dissenting voices. A consensus has formed around a few findings. Studies almost all find that at the very bottom of the pay scale, public workers enjoy slightly higher compensation than their private-sector analogs, while at the upper end of the scales (lawyers and other professionals, e.g.), public workers are paid less than comparable private-sector employees. Most of the disagreements, therefore, are about employees in the middle of the pay scale. Second, almost all studies agree public workers receive less “take home” pay than private-sector workers, but they generally receive more generous health and pension benefits. When combining pay and benefits, a majority of studies still find a “public-sector penalty,” but others do not.

Important methodological differences include how to calculate the value (and current cost) of future benefits, how to compare certain types or ranges of jobs across sectors, and whether to assign value to “job security” for government employees. For example, some public-sector jobs have direct private-sector analogs (janitors and lawyers), and some do not (police and firefighters). Furthermore, even jobs with the same title may not involve the same work. Also, controlling for employer size seems to matter: Studies that do not use such controls are more likely to find a public-sector premium than studies that do.

Keywords: labor unions, compensation, public-sector, private-sector

JEL Classification: B41, E24, H70, J30, J31, J38, J45, J51, J58, K31, L32