The Public-Private Pay Debate: What Do the Data Show?

By Miller, Michael A. | Monthly Labor Review, May 1996 | Go to article overview

The Public-Private Pay Debate: What Do the Data Show?


Miller, Michael A., Monthly Labor Review


From the 50 State capitols to the 80,000 local government entities, the level of public employees' pay is a much-discussed issue. Payroll costs are a big-ticket item in State and local governments, amounting to more than 60 percent of all expenditures. Citing average pay rates and quit rates, critics such as Wendell Cox and Samuel A. Brunelli argue that public employees are overpaid compared with private sector employees and that public agencies are over-staffed.(1) Others, such as Dale Belman and John Heywood, argue that State and local governments provide services requiring a better educated and higher skilled work force than exists, on the whole, in the private sector.(2) In addition, citizens expect government to lead by example, and studies indicate that State and local governments have outpaced the private sector in remedying wage discrimination against women and minorities.(3)

This article examines the current literature and then uses occupational pay data from the BES Occupational Compensation Survey Program (OCSP) to compare wages and salaries in State and local governments with pay in nonfarm private industry. For the occupations studied, the major findings include the following:

* At the low end of the pay scale, State and local governments generally paid better than private industry did.

* Among white-collar jobs, private industry usually paid better than State and local governments did.

* Among white-collar jobs, within occupations, as pay rose with the level of duties and responsibilities, the private sector paid increasingly better wages.

* State and local government pay lagged far behind that of private industry for professional and administrative occupations.

* Patterns were mixed for technical, clerical, and blue-collar workers.

* Comparisons across occupations revealed that workers in lower paying jobs were more likely to be paid better in the public sector. Workers in higher paying jobs were more likely to be paid better in private industry.

Recent studies of pay

A survey of the recent literature on public and private sector pay (wages and salaries) reveals that conclusions may be more closely linked to methodology and ideology than is desirable. Generally, researchers employ one of two methodologies: human capital studies or comparability analyses. Human capital studies typically calculate an overall average wage rate for all workers and then examine the rate in terms of demographic characteristics such as age, education, race, and sex. Comparability analyses weigh differences in the average pay of workers in the same occupation performing essentially the same level of work in the different sectors. Some studies report that State and local governments pay better than private industry does, others report that private industry pays better, and still others report that the results are mixed. This disparity arises for two reasons:

* The data that were used came from sources (pay surveys) designed to collect data in different ways, often for different purposes.

* Average wage rates used in the studies were calculated in different ways; that is, the researchers did not average the same factors.

The differences in the results of the various studies have fostered a serious debate over the appropriateness of pay levels in Stale and local governments. This article summarizes the debate and then examines whether data collected by the OCSP help to clarify the issue.

Human capital studies, which typically compare all-employee average wage rates, often provide valuable insight into differences in data that stem from demographic characteristics. Data used in these studies frequently come from readily available wage and salary surveys collected on a nationwide basis by various Federal agencies. Two examples of data banks used in human capital studies are the Current Population Survey (CPS)(4) and the National Income and Product Accounts. …

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