Wages, Pensions, and Public-Private Sector Compensation Differentials

We use a sample of full-time workers mostly over 50 years of age from the 2004 and 2006 waves of the Health and Retirement Study to investigate whether workers in federal, state, and local government receive more generous wage and pension compensation than private sector workers, ceteris paribus. With respect to hourly remuneration (wages plus employer contributions to defined contribution plans), federal workers earn a premium of about 39 percent, taking differences in employee characteristics into account. The differential varies by gender and race. However, there are no statistically discernible differences between state and local workers and their private sector counterparts, ceteris paribus. On the other hand, pension wealth accumulation is greater for employees in all three government sectors than for private sector workers, even after taking worker characteristics into account. As a proportion of the hourly private-sector wage, the hourly equivalent public-private differentials are 14.3 percent for federal workers, 8.3 percent for state workers, and 8.6 percent for local workers, ceteris paribus. Again, there are differences by gender and race. We find no evidence that highly-educated individuals are penalized by taking jobs in the public sector, either with respect to wages or pension wealth.