Public and private jobs

Lifted from comments at Economix on the distorted comparisons of public versus private wages:

These BLS data have been frequently cited to support the claim that public sector workers are paid more than private sector workers. However, as described at a February 2009 conference sponsored by the Federal Reserve Bank of Chicago, the wage differentials shown above do not adjust for differences in the types of jobs in private and public sectors. According to an analysis of the 2008 BLS data presented at the Fed conference, the main reason for the wage discrepancy is that private sector jobs are generally lower-skilled and thus lower-paid retail jobs, while public sector jobs are generally higher-skilled and higher-paid professional positions, although lower-skilled positions pay more in the public than in the private sector due to higher levels of public sector unionization. Representatives of the BLS pointed out that “..roughly two thirds of public sector jobs are professional and administrative, while 51% of private sector jobs are; and retail sales and food service jobs, relatively low-paid and often part-time positions, represent 20% of private sector jobs, but only 2% of public sector jobs.”

According to the conference summary, “in low-skill jobs, public sector wages exceed private sector wages, but in high-skill jobs, public sector wages significantly lag private sector wages (benefits are not in this analysis). This is what some academics call the ‘double imbalance’…the public sector is overpaying low-skill workers while underpaying high-skill workers.” He also showed that when gender, race, education, union membership, age, occupation, and state of residence are *not* controlled for, “public sector employees appear to receive an 18.6% wage premium over private sector employees…” But in controlling for those factors, “public sector workers have a 4.5% wage discount as compared with private sector workers.”

The benefits gap between the public and private sectors shown in the data is due not so much to an increase in public sector benefits, but to an erosion of benefits in the private sector over the past 20 years, although public sector benefits are sure to follow.

As anyone who has worked in a skilled professional position in both the public and private sectors can attest, most private sector professional jobs at similar skill levels pay significantly more, which is why the public sector is continuously losing highly-skilled employees to the private sector. (I should know, I’m an economist who quit a public sector job for a higher-paying private sector one.)

The link to the Federal Reserve conference summary is here.

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