Over at The Weekly Standard, American Enterprise Institute scholar Andrew Biggs and the Heritage Foundation's Jason Richwine make a solid contribution to the journalistic/economic literature on public vs. private sector pay, largely by surveying the many different sub-categories of study in this controversial and vitally important field. Give the whole thing a read or a bookmark if you're interested in the subject; I'll fast-forward here to their conclusion:
The question of whether federal workers are overpaid is often portrayed in the media as unanswerable, with each side of the debate citing its own numbers. In fact, the academic evidence is much more one-sided: Generally speaking, federal workers do receive higher salaries than similar private employees; individuals changing jobs receive bigger pay increases when their new job is with the federal government; federal employees quit less than private workers; and private workers line up to get federal jobs.
The authors also point to some benefits of lowering public sector personnel costs:
If ordinary Americans are to accept significant sacrifices in programs that are dear to them, they need to know that there isn't a protected class receiving better treatment.
A number of studies of fiscal consolidations in OECD countries over the past several decades have shown that reductions in the government wage bill—that is, the size and pay of the public sector work force—are an important part of larger efforts to balance the budget. A recent study published by the American Enterprise Institute showed that countries that succeeded in reducing their fiscal gaps placed a lot of weight on reducing public sector pay.
One reason is that reducing the public workforce shifts resources to the private sector, where they are almost certainly better utilized and so benefit the economy. A second, and probably more important, reason is basic credibility: When a government is willing to take on entrenched interests, it demonstrates to both citizens and financial markets that it is serious about reform. Individuals are more willing to invest when they feel confident their taxes will not rise in the future, and lenders are more willing to purchase government debt when they know it can be paid back.
A 1996 International Monetary Fund study concluded: "Fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation." Given the size of the fiscal gap the federal government must close, it seems foolish to leave the government wage bill out of the equation.