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report
January 30, 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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Highlights
How does the compensation of federal civilian employees compare with that of employees in the private sector?
Employees of the federal government and the private sector differ in ways that can affect compensation. Federal workers tend to be older, more educated, and more concentrated in professional occupations than private-sector workers.
CBO's study compares federal civilian employees and private-sector employees with certain similar observable characteristics (described below). Even among workers with similar observable characteristics, however, employees of the federal government and the private sector may differ in other attributes, such as motivation or effort, that are not easy to measure but that can matter a great deal for individuals' compensation. This analysis focuses on wages, benefits, and total compensation between 2005 and 2010.
Wages
Differences in wages between federal employees and similar private-sector employees in the 2005-2010 period varied widely depending on the employees' level of education.
- Federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector.
- Workers whose highest level of education was a bachelor's degree earned roughly the same hourly wages, on average, in both the federal government and the private sector.
- Federal workers with a professional degree or doctorate earned about 23 percent less, on average, than their private-sector counterparts.
Overall, the federal government paid 2 percent more in total wages than it would have if average wages had been comparable with those in the private sector, after accounting for certain observable characteristics of workers.
Benefits
The cost of providing benefits—including health insurance, retirement benefits, and paid vacation—differed more for federal and private-sector employees than wages did, but measuring benefits was also more uncertain.
- Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.
- Average benefits for federal workers whose education ended in a bachelor's degree were 46 percent higher than for similar workers in the private sector.
- Workers with a professional degree or doctorate received roughly the same level of average benefits in both sectors.
On average, the benefits earned by federal civilian employees cost 48 percent more than the benefits earned by private-sector employees with certain similar observable characteristics.
Total Compensation
Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees also varied according to workers' education level.
- Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
- Federal workers whose education culminated in a bachelor's degree averaged 15 percent higher total compensation than their private-sector counterparts.
- Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.
Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.
Methodology
CBO's analysis compared federal civilian employees with private-sector employees who resembled them in the following observable characteristics:
- Level of education,
- Years of work experience,
- Occupation,
- Employer's size,
- Geographic location (region of the country and urban or rural location), and
- Demographic characteristics (age, sex, race, ethnicity, marital status, immigration status, and citizenship).
Further Reading
This study presents an overview of CBO's findings. More-technical explanations of CBO's methodology, including a discussion of the ways in which CBO's methods differ from those of other major studies, are presented in CBO working papers on wages and on benefits.
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Policies for Increasing Economic Growth and Employment in 2012 and 2013
Highlights
The Economic Outlook
CBO expects that, in 2012 under current law,
- The unemployment rate will remain close to 9 percent and
- GDP growth will be about 2½ percent, with the level of GDP remaining well below its potential.
Fiscal Policy Options for Increasing Economic Growth and Employment in 2012 and 2013
One criterion for evaluating fiscal policy options is the impact on the economy per dollar of budgetary cost. Based on that measure of cost-effectiveness:
Higher-impact policies
- Reduce the incremental cost to businesses of adding employees or
- Are targeted toward people who would be most likely to spend additional income.
Lower-impact policies
- Primarily affect businesses’ cash flow but have little impact on their incentives to hire or invest.
Reductions in taxes and increases in government spending would produce short-term economic benefits—but without offsetting actions to reverse the accumulation of government debt, future output and future incomes would tend to be lower than they otherwise would have been.
If policymakers wanted to boost the economy in the near term while seeking to achieve long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade.
Other Types of Policy Options for Increasing Economic Growth and Employment in 2012 and 2013
CBO examined an illustrative set of potential changes in regulatory policies and other kinds of legislative actions (other than changes in fiscal policy) related to energy and the environment, the financial and health care sectors, and international trade.
CBO concludes:
- Some changes in policies that CBO considered would probably raise output and employment during the next few years; other changes would probably lower output and employment.
- The economic effects of those specific changes would probably be too small or would occur too slowly to significantly affect overall output or employment in the next two years.
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Unemployment Insurance in the Wake of the Recent Recession
Nov 2012 - Between 2007 and 2010, unemployment benefits expanded nearly five-fold owing to high unemployment due to the weak economy, and decisions by policymakers to increase the number of weeks for which eligible unemployed workers could receive benefits.
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