Comparing the Compensation of Federal and Private-Sector Employees, 2011 to 2015

The federal government employs about 2.2 million civilian workers—1.5 percent of the U.S. workforce—spread among more than 100 agencies in jobs that represent over 650 occupations. As a result, the government employs workers with a broad complement of talents, skills, and experience, and it competes with other government and private-sector employers for people who possess the mix of attributes needed to do the work of its agencies.

In fiscal year 2016, the government spent roughly $215 billion to compensate federal civilian employees. About two-thirds of that total was spent on civilian personnel working in the Department of Defense, the Department of Veterans Affairs, or the Department of Homeland Security. Federal employees typically receive periodic increases in their wages on the basis of performance, longevity, and changes in private-sector pay. However, lawmakers eliminated annual across-the-board increases for most federal civilian workers in calendar years 2011, 2012, and 2013.

How does the compensation of federal civilian employees compare with that of employees in the private sector? The answer to that question is complicated by the fact that the federal and private-sector workforces differ in characteristics that can affect compensation, such as experience, education, and occupation. On the whole, federal workers tend to be older, more educated, and more concentrated in professional occupations than private-sector workers. To account for such differences, CBO has used data for 2011 through 2015 reported by a sample of households and employers to estimate differences between the cost of wages and benefits for federal employees and the cost of wages and benefits for similar private-sector employees, defined as those having a set of similar observable characteristics. Specifically, in its analysis, CBO sought to account for differences in individuals’ level of education, years of work experience, occupation, size of employer, geographic location (region of the country and urban or rural location), veteran status, and various demographic characteristics (age, sex, race, ethnicity, marital status, immigration status, and citizenship). This report updates a 2012 CBO report that compared the compensation of federal and private-sector employees for the 2005–2010 period.

Even among workers with similar observable characteristics, however, employees of the federal government and in the private sector may differ in other traits, such as motivation or effort, that are not easy to measure but that can matter a great deal for individuals’ compensation. Moreover, substantial ranges of compensation exist in both the federal government and the private sector among workers who have similar observable attributes. Therefore, even within groups of workers who have such similarities, the average differences in compensation between federal and private-sector employees do not indicate whether particular federal employees would receive more or less compensation performing a similar job in the private sector.

CBO’s analysis focuses on wages, benefits, and total compensation (the sum of wages and benefits). 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.

Wages

During the 2011–2015 period, the difference between the wages of federal civilian employees and those of similar private-sector employees varied widely depending on the employees’ educational attainment. The extent of that variation is evident in the differences in wages for workers with a bachelor’s degree (the most common level of education in the federal workforce), the least educated workers, and the most educated workers:

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

Overall, the federal government would have reduced its spending on wages by 3 percent 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.

Those estimates do not show precisely what federal workers would earn if they were employed in a comparable position 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). In addition, the estimated differences depend on how well the observable characteristics were measured in the samples of employees used by CBO and on other factors that are inherent in any statistical analysis.

The span between the wages of high- and low-paid employees was narrower in the federal government than in the private sector, even after accounting for employees’ education and other observable traits. The narrower dispersion of wages among federal employees may reflect the constraints of federal pay systems, which make it harder for managers to reward the best performers or to limit the pay of poor performers.

Benefits

During the 2011–2015 period, the federal and private sectors differed much more with regard to the costs that employers incurred in providing current and future benefits—including health insurance, retirement benefits, and paid leave—than they did with regard to wages. Again, the extent of that difference varied according to workers’ educational attainment:

• Average benefits were 52 percent higher for federal employees whose highest level of education was a bachelor’s degree than for similar private-sector employees (see table below).
• Average benefits were 93 percent higher for federal employees with no more than a high school education than for their private-sector counterparts.
• Among employees with a doctorate or professional degree, by contrast, average benefits were about the same in the two sectors.

On average for workers at all levels of education, the cost of benefits was 47 percent higher for federal civilian employees than for private-sector employees with certain similar observable characteristics, CBO estimates.

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 have become less common in the private sector. CBO’s estimates of the costs of benefits are much more uncertain than its 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.

Total Compensation

As with its components (wages and benefits), total compensation differed by varying degrees between the federal government and the private sector over the 2011–2015 period depending on workers’ educational attainment:

• Among workers whose education culminated in a bachelor’s degree, the cost of total compensation averaged 21 percent more for federal workers than for similar workers in the private sector.
• Among workers with a high school diploma or less education, total compensation costs averaged 53 percent more for federal employees than for their private-sector counterparts.
• Total compensation costs among workers with a professional degree or doctorate, by contrast, were 18 percent lower for federal employees than for similar private-sector employees, on average.

Overall, the federal government paid 17 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.

Comparison With CBO’s Analysis of the 2005–2010 Period

Some of the differences between federal and private-sector compensation have changed since CBO’s previous analysis of the issue, which covered the years from 2005 to 2010. For instance, the average total compensation of federal workers without a bachelor’s degree exceeded that of their counterparts in the private sector by more between 2011 and 2015 than between 2005 and 2010. Conversely, relative to their private-sector counterparts, federal workers with a master’s degree received less average total compensation during the 2011–2015 period than during the 2005–2010 period. The differences in total compensation by educational attainment changed because wages grew more quickly among less educated workers in the federal government than they did among workers in the private sector and because CBO adjusted its approach to determining who is a federal employee. (Except for that adjustment, both analyses used broadly similar approaches.)

Two significant policy changes have affected federal wages since 2010. First, lawmakers eliminated across-the-board salary increases for federal employees from 2011 to 2013, limiting the total increase from 2010 through 2015 to 2 percent. In contrast, salaries increased by about 10 percent in the private sector over the 2010–2015 period. However, in addition to the across-the-board increase of 2 percent, average federal hourly wages were boosted by a decrease in federal hiring—because recently hired federal employees typically have lower salaries than other federal employees—and by a temporary reduction in the number of hours worked by salaried federal employees.

Second, lawmakers increased the share of wages that workers first hired after 2012 must contribute to the federal defined benefit retirement plan. That change will gradually reduce the cost to the federal government of defined benefit pensions beginning in 2017, but it does not factor into this analysis because workers hired after 2012 have not yet accumulated the five years of service needed to receive those benefits.