Compensation, Compensation Administration, Compensation Planning

Public vs. Private Sector: The Compensation Gap Widens

The Congressional Budget Office (CBO) released a report on April 25, 2017 discussing the compensation gap between private sector workers and those employed by the federal government. Since the last such CBO study in 2012, the gap appears to have widened.compensation gap

The report’s summary explained the goal of the current study and its predecessor: “It is intended to address the question of how the federal government’s compensation costs would change if the average cost of employing federal workers was the same as that of employing private-sector workers with certain similar observable characteristics.”

The CBO is not under the illusion that such a comparison is simple. Factors influencing compensation—such as experience, education, and occupation—can be very different in federal government workers than they are in the private sector, according to the report.

“Federal workers tend to be older, more educated, and more concentrated in professional occupations than private-sector workers,” it says. And there are other, more esoteric, traits that make direct comparison difficult. Motivation and effort, for example, are not easy to measure but can matter a great deal, says the report.

Among the report’s findings:

  • Federal civilian workers whose highest level of education was a bachelor’s degree earned 5% more, on average, in the federal government than in the private sector.
  • Federal civilian workers with no more than a high school education earned 34% more, on average, than similar workers in the private sector.
  • However, federal workers with a professional degree or a doctorate earned 24% less, on average, than their private-sector counterparts.

The report concluded that that federal government might save money by adjusting compensation based on these findings. “Overall,” the report says, “the federal government would have reduced its spending on wages by 3% if it had decreased the pay of its less educated employees and increased the pay of its more educated employees to match the wages of their private sector counterparts.”

With 2016 spending on pay for federal civilian employees reaching $215 billion, the savings could be significant—nearly $6.5 billion.