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Compensation for State and Local Government Workers

  • Maury Gittleman
  • Brooks Pierce

Are state and local government workers overcompensated? In this paper, we step back from the highly charged rhetoric and address this question with the two primary data sources for looking at compensation of state and local government workers: the Current Population Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics, and the Employer Costs for Employee Compensation microdata collected as part of the National Compensation Survey of the Bureau of Labor Statistics. In both data sets, the workers being hired in the public sector have higher skill levels than those in the private sector, so the challenge is to compare across sectors in a way that adjusts suitably for this difference. After controlling for skill differences and incorporating employer costs for benefits packages, we find that, on average, public sector workers in state government have compensation costs 3-10 percent greater than those for workers in the private sector, while in local government the gap is 10-19 percent. We caution that this finding is somewhat dependent on the chosen sample and specification, that averages can obscure broader differences in distributions, and that a host of worker and job attributes are not available to us in these data. Nonetheless, the data suggest that public sector workers, especially local government ones, on average, receive greater remuneration than observably similar private sector workers. Overturning this result would require, we think, strong arguments for particular model specifications, or different data.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 1 (Winter)
Pages: 217-42

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Handle: RePEc:aea:jecper:v:26:y:2012:i:1:p:217-42
Note: DOI: 10.1257/jep.26.1.217
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  1. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  2. Kenneth R Troske, 1994. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Working Papers 94-10, Center for Economic Studies, U.S. Census Bureau.
  3. Hirsch, Barry & Schumacher, Edward J., 2003. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," IZA Discussion Papers 783, Institute for the Study of Labor (IZA).
  4. Joseph Gyourko & Joseph Tracy, 1986. "An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status," NBER Working Papers 1920, National Bureau of Economic Research, Inc.
  5. Maury Gittleman & Brooks Pierce, 2011. "Inter-Industry Wage Differentials, Job Content and Unobserved Ability," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 64(2), pages 356-374, January.
  6. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
  7. James M. Poterba & Kim S. Rueben, 1994. "The Distribution of Public Sector Wage Premia: New Evidence Using Quantile Regression Methods," NBER Working Papers 4734, National Bureau of Economic Research, Inc.
  8. Fortin, Nicole & Lemieux, Thomas & Firpo, Sergio, 2011. "Decomposition Methods in Economics," Handbook of Labor Economics, Elsevier.
  9. Manning, W. G. & Duan, N. & Rogers, W. H., 1987. "Monte Carlo evidence on the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 35(1), pages 59-82, May.
  10. Jeffrey Thompson & John Schmitt, 2010. "The Wage Penalty for State and Local Government Employees in New England," Working Papers wp233, Political Economy Research Institute, University of Massachusetts at Amherst.
  11. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
  12. Dale Belman & John S. Heywood, 2004. "Public wage differentials and the treatment of occupational differences," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(1), pages 135-152.
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