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cost estimate
September 18, 2012
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Employment and Labor Markets
The level of employment has a direct effect on people's well-being and the government's finances. When employment is higher, incomes and federal revenues are higher, while federal outlays for income support programs are lower. CBO analyzes the causes and consequences of unemployment, the effects of the unemployment insurance program, the impact of various policy proposals that might affect employment, and other issues concerning labor markets such as people's participation in the labor force.
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Comparing Benefits and Total Compensation in the Federal Government and the Private Sector
Abstract
This analysis integrated Current Population Survey data from 2005 through 2010 with data on a wide range of employee benefits to compare the cost of those benefits for federal employees and for workers in the private sector who have certain similar observable characteristics. In that comparison, we found that the average cost of benefits was about 72 percent higher for federal employees than for their private-sector counterparts among workers with no more than a high school education, was about 46 percent higher in the federal sector among workers with a bachelor’s degree, and was about the same in the two sectors among workers with a professional degree or Ph.D. Overall, federal benefits were about 48 percent higher, on average, than the benefits received by measurably similar private-sector workers. The most important factor contributing to differences between the two sectors in the costs of benefits is the defined-benefit pension plan that is available to most federal employees. Such plans are becoming less common in the private sector.
Benefits accounted for about 39 percent of total compensation (the sum of wages and benefits) in the federal sector versus 30 percent of total compensation at large firms in the private sector. We found that the average of total compensation was about 36 percent higher for federal employees than for their private-sector counterparts among workers with no more than a high school education, was about 15 percent higher among workers with a bachelor’s degree, and was about 18 percent lower among workers with a professional degree or Ph.D. Overall, total compensation for federal employees was about 16 percent higher, on average, than total compensation for measurably similar workers in the private sector.
These estimates do not show precisely what the compensation of federal workers would be if they were employed in the private sector. The difference between federal employees’ compensation and what that compensation would be in the private sector could be larger or smaller depending on characteristics that were not included in this analysis because such traits are not easy to measure. These estimates of the costs of benefits are much more uncertain than the estimates of wages, primarily because the cost of defined-benefit pensions that will be paid in the future is more difficult to quantify and because less-detailed data are available about benefits than about wages.