learn more about working at cbo and check out the agency’s career opportunities
September 14, 2012
![]()
Comparing the Compensation of Federal and Private-Sector EmployeesJan 2012 - This analysis focuses on wages, benefits, and total compensation between 2005 and 2010.
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.

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.

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.
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.
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.
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.
Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees also varied according to workers' education level.
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.
CBO's analysis compared federal civilian employees with private-sector employees who resembled them in the following observable characteristics:
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.
This analysis used Current Population Survey data from 2005 through 2010 to compare the hourly wages of federal employees and workers in the private sector who have certain similar observable characteristics. In that comparison, we found that the arithmetic average of wages was about 21 percent higher for federal employees than for their private-sector counterparts among workers with no more than a high school education, was about the same in both sectors among workers with a bachelor’s degree, and was 23 percent lower in the federal sector among workers with a professional degree or Ph.D. Overall, federal wages were about 2 percent higher, on average, than wages of similar private-sector workers.
We found that the wages of federal employees were much less dispersed than those of employees with similar characteristics in the private sector—particularly among workers with more education. That aspect of the data causes semilog regressions to generate inconsistent estimates of percentage differences in arithmetic means. Consistent estimates of differences in arithmetic means—obtained using a quasi-maximum likelihood estimator that is robust to distributional misspecification—are substantially smaller than differences in geometric means estimated by semilog regressions. The differences in arithmetic means are more relevant for answering questions about how federal spending would change if federal workers were paid wages equal to those of measurably similar workers in the private sector.
The estimates do not show precisely what federal workers would earn if they were employed in the private sector. The difference between what federal employees earn and what they would earn 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. The results apply to the cost of employing full-time full-year workers. The analysis focused on those workers—who accounted for about 93 percent of the total hours worked by federal employees from 2005 through 2010—because higher-quality data were available for them than for other workers.