Fraser Institute Studies Public and Private Sector Wages
The Fraser Institute recently released a study indicating that public sector workers enjoy 12% higher wages than private sector employees after controlling for a number of factors including age, education, tenure type of job, and location. Unfortunately, this 12% figure understates the real gap.
Because the study’s authors could not get sufficient data to measure non-wage benefits, such as pensions, insurance, and vacation, they couldn’t properly compare total compensation between the public and private sectors. The 12% figure would certainly rise if we had this data.
There is another important factor as well: competence. “In 2011, 0.6 per cent of government employees lost their jobs—less than one sixth the job-loss rate in the private sector (3.8 per cent).” In the private sector, it is weaker workers who tend to lose their jobs. Even when the official reason for job loss is the elimination of a position, the truth is that companies do their best to eliminate poor performers. The government does a poor job of getting rid of people who can’t or won’t work.
To be clear, I’m not saying that all government workers are weak. In any large population you get a lot of variance. But because too many poor performers get to keep their government jobs, the average competence gets dragged down compared to the private sector. The result is that some government workers could not get and keep a similar private sector job. On average, these people would have to find lower-paying work if they had to move to the private sector.
If we had a way to measure this competence effect, public sector wages would start to look even better. So, the Fraser Institute’s figure of a 12% wage gap significantly understates the real gap if we factor in non-wage compensation and competence.
Because the study’s authors could not get sufficient data to measure non-wage benefits, such as pensions, insurance, and vacation, they couldn’t properly compare total compensation between the public and private sectors. The 12% figure would certainly rise if we had this data.
There is another important factor as well: competence. “In 2011, 0.6 per cent of government employees lost their jobs—less than one sixth the job-loss rate in the private sector (3.8 per cent).” In the private sector, it is weaker workers who tend to lose their jobs. Even when the official reason for job loss is the elimination of a position, the truth is that companies do their best to eliminate poor performers. The government does a poor job of getting rid of people who can’t or won’t work.
To be clear, I’m not saying that all government workers are weak. In any large population you get a lot of variance. But because too many poor performers get to keep their government jobs, the average competence gets dragged down compared to the private sector. The result is that some government workers could not get and keep a similar private sector job. On average, these people would have to find lower-paying work if they had to move to the private sector.
If we had a way to measure this competence effect, public sector wages would start to look even better. So, the Fraser Institute’s figure of a 12% wage gap significantly understates the real gap if we factor in non-wage compensation and competence.
I've also heard that public sector workers use more sick days in the year than private sector counterparts. When considering the total economic output, or efficiency, then I can see how the 12% is understated as well. These kinds of studies are interesting. I wish there were more of them :)
ReplyDeleteLast I heard federal government employees *averaged* 15 sick, "personal", or disability days per year. Yikes, I don't think I'd want to work in a place that dangerous no matter what it paid. (hopefully it is obvious that I jest)
ReplyDeleteOK, this is pretty funny stuff, since the Fraser Institute's motivations might not be lily white (i.e. they have their own agenda), however, yes indeed public sector folks do have it quite good. They also haven't touched on the fact that things are actually changing, the Solid Gold pension, is becoming a Gold plated pension (i.e. Civil Servants will pay for 50% of it), and the sick leave thingy is going to change as well, but it is always fun to see The PSAC vs. Fraser Institute arguments in the local papers.
ReplyDelete@Liquid and @Greg: I've heard conflicting numbers concerning sick days, so I'm not sure of the exact figures.
ReplyDelete@Big: I try to stay out of any battle between the Fraser Institute and PSAC. I'm more interested in the truth and you're right that changes to the civil servant pension are making it a little less attractive. But, it's still better than what the average private sector worker gets.
But the truth is no matter how overpaid and overcompensated public sector workers are, most of us do not want to join their ranks, do we? And how does that factor into the equations? If we aren't beating down the doors to get those jobs, there must be a large negative factor that is deterring us. Maybe someone could try to study and quantify that next?
ReplyDelete@Bet Crooks: I don't know how many applications the public service gets. I'm guessing that many people don't want in and many otehrs do want in.
DeleteA reader, Brian, sent me the following message:
ReplyDelete"So this means that private sector workers are receiving 12% lower wages than they should be receiving!"
Unfortunately, we can't increase wages (and benefits) for everybody. If we did, inflation would take it away again.