The Relative Pay Of Public Employees In The U.S.: An Assessment Of Empirical Research

Abstract

Beginning in the 1970s and continuing to the present, economists have examined the pay of public sector employees. Usually, an attempt is made to compare the compensation of public employees at various levels of government to workers in the private sector who are believed to be comparable. Of the many studies done, there is substantial variation in the operational meaning of comparable. Nonetheless, the general finding is that public employees on average receive rents or, stated otherwise, are overcompensated when compared to employees in private employment. The estimated levels of rent seem to be highest at the federal and lowest at the local level of government. Despite the general finding, there are substantial differences in the quantitative estimates. The major focus of this paper is on a critical evaluation of the various empirical methodologies that have been employed. An attempt will be made to reconcile the differences observed and to suggest improvements in the method of estimation.