Government Employees: Earning Gap Higher for Less Educated


George Mason University economist Bryan Caplan noted last week some interesting details about the income gap between federal government and private sector employees, relying on a Congressional Budget Office report from last year:

After adjusting for education, occupation, work experience, and other observable characteristics, federal salaries are only 2% higher than in the private sector.

2. HOWEVER, federal workers' fringe benefits are 46% higher than in the private sector.  As a result, total compensation (salary + benefits) is 16% higher for federal workers than comparable private sector workers.

3. Overcompensation is highest for the least-educated federal workers—+36% if you've got a high school diploma or less.  As education rises, the federal worker premium falls.  Federal workers with professional or doctoral degrees actually earn 18% less than private sector counterparts.  Full results:


Caplan notes:

 Yes, the federal government pays more for B.A.s than the private sector does.  The reason, though, is not that the federal government overpays for credentials.  The reason, rather, is that the federal government overpays for breathing.  If someone who never set foot on a college campus manages to land a federal job, his marginal reward for acquiring further credentials is exceptionally low.

He also notes that the report doesn't account for what is really one of the greatest fringe benefits of federal vs. private sector work: job security, which is alas unmonetized in these calculations.