Federal Government Is a Lucrative ‘Industry’
The Bureau of Economic Analysis latest release of industry compensation levels shows that the average federal worker ranks up at the top along with employees in the finance and energy industries. That’s not exactly popular company these days.
The BEA presents compensation data for 72 industries that span the U.S. economy. Figure 1 shows the 20 industries with the highest levels of average compensation, which includes wages and benefits. It also shows the average for all U.S. private industries and the average for the industry with the lowest compensation. (The names of the industries have been simplified in some cases).
Federal civilian workers have the sixth highest average compensation of the 72 industries:
As yesterday’s post showed, federal employee compensation has exploded over the course of the decade. Figure 2 shows that this federal employee compensation growth has been the fifth highest of the 72 industries measured by the BEA:
Federal Employees Continue to Prosper
The Bureau of Economic Analysis has released its annual data on compensation levels by industry. The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand. This state of affairs is a thumb in the eye of the private sector, which continues to struggle with high unemployment. Many private sector employees have been forced to take pay and benefit cuts while continuing to fund generous federal employee compensation with their taxes.
Figure 1 looks at average wages. In 2009, the average wage for 1.95 million federal civilian workers was $81,258, which compared to an average $50,462 for the nation’s 101 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) continued its steady increase over the past decade.
Figure 2 shows that the federal advantage is even more remarkable when worker benefits are included. In 2009, federal worker compensation averaged a whopping $123,049, which was more than double the private sector average of $61,051.
The disparity between average federal and private employee compensation has risen dramatically over the decade: from 66 percent in 2000 to 101 percent in 2009. Defenders of generous federal employee compensation point to the higher levels of education in the federal workforce. However, it’s doubtful that education accounts for the growing disparity between federal and private compensation.
Figure 3 shows that federal employees also enjoy much greater job security (data is from Table 18 here). In 2009, a private sector employee was more than three times more likely to be laid off or fired than a federal employee.
A good indicator of the adequacy of federal compensation is the quit rate. Figure 4 shows that in 2009, private sector employees quit at a rate that was more than eight times higher than federal employees (data is from Table 16 here). This indicates that federal employees recognize that the generous combination of wages, benefits, and job security is hard to match in the private sector, so they stay put.
Trade Gap Plunges in 2009, but Where Are the Jobs?
Lost in the buzz last week over health care was the news that the broadest measure of the U.S. trade deficit fell sharply in 2009 from the year before. According to the Bureau of Economic Analysis, the U.S. current account deficit plunged from $706 billion in 2008 to $420 billion last year — the smallest deficit since 2001.
I’ve been waiting for a few days now for the usual trade deficit hawks to hail this development as great news for millions of Americans looking for work.
In years when the trade deficit was rising, it was common practice for the labor-union-friendly Economic Policy Institute to publish detailed studies showing that larger trade deficits caused the U.S. economy to lose hundreds of thousands of jobs each year. For example, according to an October 2008 EPI paper, rising non-petroleum trade deficits from 2000 to 2006 caused a lost of 484,400 jobs per year, while the shrinking deficit in 2007 lead to the creation of 272,500 jobs.
By the EPI’s own internal logic, the past two years should have been a boom time for job creation. Between 2007 and 2009, the non-petroleum trade deficit dropped by $174 billion as the sagging domestic economy cut demand for impost. If that was good news for jobs, somebody forgot to tell the U.S. labor market. Since the end of 2007, the U.S. economy has shed a net 8 million jobs.
Oops, maybe it’s time for EPI to rework its model.
Government and GDP
The expansion in government and poor state of the economy got me thinking about how government growth is reflected in measured gross domestic product. So here is a wonky look at the treatment of government in the Bureau of Economic Analysis GDP data.
Data notes: By “government,” I mean total federal, state, and local. For 2009, I’m using the average of second and third quarter data. All data from BEA Tables here.
GDP measures total production. In 2009, government production was 20.7 percent of U.S. GDP. Government production is roughly the sum of government value-added (the stuff it produces itself) and government purchases. The first item, government value-added, was 12.4 percent of GDP and mainly consists of employee compensation. For example, the Pentagon produces output by adding together fighter pilots, which it hires, and fighter jets, which it buys.
A more commonly cited measure of government is total government spending. In 2009, that was 38 percent of GDP. The difference between this number (38 percent) and the production number (20.7 percent) is 17.3 percent, and represents the sum of government interest payments and transfer payments to individuals and businesses.
Figure 1 shows how the three measurements of government size have changed over time. Government production has remained fairly stable as a share of the economy, but total government spending has soared. The growing gap between these two lines mainly represents the massive growth in transfer (or subsidy) programs, such as Social Security.
Wall Street, Big Oil, and Federal Workers
What do workers in finance, energy, and the federal government have in common? Very generous compensation packages, according to data from the Bureau of Economic Analysis.
When I posted federal compensation data last week, I received a flood of comments that disputed my contention that federal workers are overpaid. A common retort was that “federal workers are not burger flippers.” That’s true, but workers in the computer systems design, computer manufacturing, and chemicals industries are not burger flippers either, yet those folks also earn less than federal workers, on average.
The Bureau of Economic Analysis presents compensation data for 72 industries that span the U.S. economy (Table 6.2D). Figure 1 shows the 20 industries with the highest levels of average compensation, including wages and benefits. It also shows the average for all U.S. private industries and the average for the industry with the lowest compensation, which, indeed, includes burger flipping. (I’ve simplified the names of the industries in some cases).
Federal civilian workers have the seventh highest average compensation of 72 industries. Compensation in the federal civilian workforce is topped only by compensation in three finance-related and three energy-related industries.
Should federal compensation be so high? We are always told that the 1.9 million federal civilian workers are “public servants,” implying that they are selflessly sacrificing for the good of the nation. I’m sure that most federal workers are dedicated employees, but looking at these compensation levels, I don’t see much sacrificing going on.
It is true that there are some elite agencies in the government that need to have high compensation levels. But the bulk of the federal workforce is in sprawling bureaucracies such as the U.S. Department of Agriculture, which has a huge army of about 100,000 workers. The main job of USDA workers is to administer farm aid, food stamps, and other subsidy programs. That sort of paper-pushing work is not rocket science.
The other point I made last week is that the BEA data makes clear that federal compensation has skyrocketed this decade. Figure 2 provides more support for that claim.
Federal civilian workers had the fifth highest average compensation increase among 72 industries between 2000 and 2008. Average federal civilian compensation increased 57 percent, which compared to the overall average increase in the private sector of 31 percent.
Let’s slow this freight train down. Federal pay ought to be frozen for a period of years, at least until the economy recovers and private sector pay starts catching up.
Federal Pay: Response to the Critics
My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:
First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).
Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.
Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.
Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.
A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).
That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.
Marginal Tax on Corporate Profits was 74.2% in the 1st Quarter
From the Bureau of Economic Analysis news release of May 29:
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $42.6 billion in the first quarter. . . Taxes on corporate income increased $31.6 billion. . . [therefore] profits after tax . . . increased $11.1 billion.
In other words, taxes extracted 74.2% of any added (marginal) corporate earnings, leaving only scraps for stockholder.
Companies that lost money, on the other hand, were often bailed out and/or nationalized.
Why bother even trying to maximize profits or minimize losses?
Taxpayers and the Federal Diary
The Federal Diary column in the Washington Post is a curious piece of newspaper real estate. Most newspaper columns are aimed at the broad general public, but this column is aimed directly at the few hundred thousand government workers in the DC region. The result is that it takes a very government- and union-centric view of the world. The fact that the federal civilian workforce costs taxpayers an enormous $300 billion or so every year is beside the point for the column.
In a briefing with reporters yesterday, the head of the Office of Personnel Management complained about a Lou Dobbs television bit that featured this data that I assembled from the Bureau of Economic Analysis. The Federal Diary columnist called me yesterday about the data, and I explained to him the shortcomings of the OPM claims that federal workers are underpaid.
Unfortunately, the Federal Diary today simply parrots the OPM’s claims, calling the Dobbs/Edwards/BEA data “misleading.” Yet this data clearly shows that federal compensation has taken off like a rocket this decade.
Today’s column, like many of the Federal Diary columns, is about how to improve the pay, benefits, and working conditions of federal workers. What about the taxpayers who foot the bill? To provide some balance, the Post ought to at least have a side-by-side column entitled “Federal Taxpayers’ Diary.”
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