Dean Baker - Everyone Agrees That the Decline in Private Sector Pay Has Been Understated
May 7, 2012 Jason Richwine and Andrew Biggs have a piece [1] saying that many public sector workers are overpaid in which they also say that I agree with them in much of their analysis. This is true.
Let me outline what I think are areas of agreement. First, we seem to agree that if we just compare the straight wages paid to public sector and private sector workers, the latter do better. When we adjust for education and experience, private sector workers tend to get higher pay than their counterparts in the public sector.
This is not true across the board. My colleague John Schmitt has found that while workers with college and advanced degrees (e.g. doctors and lawyers) get less in the public sector, less educated workers get paid the same or slightly more [2] than their counterparts in the private sector. In other words, there is less inequality in public sector wages than we see in the private sector, with the average being somewhat lower.
We also agree that the lower wages for public sector workers are largely or completely offset by higher benefits. The key difference here is that public sector workers are far more likely to have a traditional defined benefit pension plan. Most workers in the public sector still have defined benefit pensions, while less than 20 percent of workers in the private sector do. (The difference is considerably less stark if we restrict the comparison to large private firms, where defined benefit plans are still common.)
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