Do Queues for Public Sector Jobs Tell Us Anything?

The question of whether public sector workers are overpaid or underpaid compared to what they would earn in the private sector is a hot topic these days. A fair bit of academic research shows that people generally earn less money in the public sector (particularly in state and local governments) than people with the same qualifications doing the same type of job in the private sector.

Some people who disbelieve this evidence are now suggesting a different approach to illustrate that workers in the public sector are overpaid: looking at queues for job openings. For example, Andrew Biggs (from the AEI) argues that “state and local government jobs offer workers higher total compensation than those individuals could get in the private sector. As a result, people are lining up to get them.”

But taking the existence of queues for public sector jobs as evidence that those jobs are overpaid is problematic, for a couple of reasons.

1. Nearly all jobs – public and private sectors – have “queues”, if you define that as a situation in which there are more applicants than open positions. What matters is whether the queues for public sector jobs are longer than the queues for private sector jobs for the same occupation and qualifications, and I have yet to see compelling evidence that that is the case. (I would welcome help in identifying some; the most commonly cited papers, e.g. Krueger (1988), do not seem to contain such direct evidence.)

2. If racial or sexual discrimination exists in the private sector but not in the public sector (and there’s evidence that this is the case), then women and racial minorities would tend to be underpaid for their labor in the private sector, giving them a strong incentive to try to switch into the public sector whenever possible. This would explain excess queuing for public sector jobs (if such excess queuing does indeed happen).

3. If, as the evidence suggests, public sector jobs tend to have compressed pay schedules, with relatively good compensation for entry-level jobs but only modest increases in compensation over an entire career (leaving overall lifetime compensation lower), then that means that individuals who can not afford to wait for the higher pay that they would eventually get in the private sector would tend to prefer public sector jobs. For those people, the requirement for a higher salary early in their career would make them willing to accept the lower lifetime earnings they’ll get in the public sector. This would also tend to cause excess queuing for public sector jobs, even though compensation is lower than private sector jobs. (Yes, this will only happen if there are incomplete credit markets such that those people can’t borrow sufficiently to make up the difference in the early part of their careers, but the fact that credit markets are indeed imperfect has been well-established, particularly for certain segments of society.)

So put me in the camp of those who are not persuaded by the “queuing” methodology of trying to determine if public sector jobs pay better or worse than their private sector counterparts.