COMPARING FEDERAL AND PRIVATE-SECTOR WAGES WITHOUT LOGS

Justin R. Falk

Contemporary Economic Policy, 2015, vol. 33, issue 1, 176-189

Abstract: type="main" xml:id="coep12061-abs-0001"> I use Current Population Survey data from 2005 through 2010 to compare the wages of federal employees and workers in the private sector who have similar observable characteristics. The distribution of wages differed drastically between the federal and private sectors. In particular, I find that federal employees with no more than a high school diploma earned 21% more, on average, than their private-sector counterparts, whereas those with a professional degree or doctorate earned 23% less. Overall, the average of federal wages was about 2% higher than the average wage of similar private-sector workers. Other researchers have found larger differences because they used log-linearized models, which result in comparisons of geometric means. I show that arithmetic means are more relevant in the context of the relationship between a government's compensation policy and its budget. The discrepancy between differences in arithmetic and geometric means occurs because the wages of federal employees were much less dispersed than those of employees with similar characteristics in the private sector. ( JEL J31 , J38, J45)

Date: 2015
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