“Employer costs for employee compensation averaged $34.15 per hour worked in September 2016, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $23.42 per hour worked and accounted for 68.6 percent of these costs, while benefits averaged $10.73 and accounted for the remaining 31.4 percent. Total employer compensation costs for private industry workers averaged $32.27 per hour worked in September 2016. Total employer compensation costs for state and local government workers averaged $45.93 per hour worked in September 2016.”
Here is a graphic comparing employee compensation for private sector workers and federal government employees:
As a young lad growing up I was repeatedly told that people gravitated to government jobs because they were secure and likely to last a lifetime, fully recognizing however that they would be paid much less than the equivalent job in the private sector I believed that mantra, until recently when the facts forced me to change my mind. According to the government’s own statistics, government workers, on average, make 40% more money, in both cash and benefits, than their free market counterparts. That is a startling higher rate of compensation for performing the exact same job. Indeed, the disparity of pay between the two groups is evident in all levels and types of employment except for those who hold professional degrees or doctorates. Even there, however, the case can be made that wages are higher in the private sector for doctors, lawyers and the like only because they enjoy the benefits of a government monopoly subsidizing their incomes. It seems like no matter how you cut it, government employees are always better off.
Why should government employees make so much more than their free market equivalents? I can think of no logical, economic or moral reason why this should be so. On the other hand, I think I know why things have become so distorted. Let me explain.
The free market is subject to economic expansions and contractions. Wages in the free market are directly tied to market conditions at the time. The colossal decrease in wages that occurred in many jobs during the Great Recession set the rate of progress in wage gains dramatically backward for several years. Only recently have wage gains recovered and exceeded their previous highs. Government jobs, on the other hand, never experience any real world conditions. Since revenues are provided by the twin pillars of inflation and taxpayer dollars there is no reason for government jobs to ever take a pay cut. As a result, government jobs have continued to pay higher and higher rates regardless of market conditions. Given enough time it is inevitable that government jobs will eventually pay more than the free market. We are now there.
What should be done about this income inequality? Where are the complaints from those who ceaselessly complain about income inequality in the free market? Where are the calls for government intervention like the ones we hear about CEO compensation and the wage gap between rich and poor? Why is income inequality in the free market evil but good in the world of government? I have no answers to those questions. If you know of anyone who does please let me know.