Trends in Public–Private Pay Parity in State and Local Governments

• Author: Rahul Pathak,Gregory B. Lewis,Chester S. Galloway
• Date: 01 September 2018
• DOI: 10.1177/0734371X16671370
• Published date: 01 September 2018
• Subject Matter: Articles

Review of Public Personnel Administration

2018, Vol. 38(3) 303 –331

© The Author(s) 2016

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DOI: 10.1177/0734371X16671370

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Article

Trends in Public–Private Pay

Parity in State and Local

Governments

Gregory B. Lewis1, Rahul Pathak2,

and Chester S. Galloway3

Abstract

Have state and local governments (SLGs) achieved pay parity with the private sector?

The answer depends on how one defines parity. Using a standard labor economics

model on U.S. Census data from 1990 to 2014, we find different patterns if we focus

on pay, on pay plus benefits, or on total compensation within an occupation. All

approaches indicate that pay is higher in local than in state governments and that

Blacks, Hispanics, and employees without college diplomas earn higher pay in SLGs

than in the private sector. In contrast, Whites, Asians, and college graduates are less

likely to enjoy higher pay working in SLGs than in the private sector. Unsurprisingly,

states with more liberal and Democratic legislatures pay public employees better,

relative to workers in the private sector.

Keywords

pay comparability, government pay, wage differentials, state and local governments

Introduction

One goal for government compensation is to achieve parity with the private sector.

Excessive public sector pay would raise the cost of government, but below-market

compensation could attract too few qualified workers to government and unnecessar-

ily increase turnover (Gerhart & Rynes, 2003; Trevor, Gerhart, & Boudreau, 1997).

Parity should ensure that public sector pay does not exploit either taxpayers or civil

servants (Smith, 1977; Venti, 1987). Achieving parity is elusive, however, and even

1Georgia State University, Atlanta, GA, USA

2City University of New York, New York, NY, USA

3Strayer University, Columbus, GA, USA

Corresponding Author:

Rahul Pathak, Baruch College, City University of New York, 135 East 22nd Street, New York, NY 10010,

USA

Email: rahul.pathak@baruch.cuny.edu

671370ROPXXX10.1177/0734371X16671370Review of Public Personnel AdministrationLewis et al.

research-article2016

304 Review of Public Personnel Administration 38(3)

defining it is controversial, with different definitions and methods leading to markedly

different conclusions (U.S. Congressional Budget Office, 2012).

We adopt definitions and methods developed by labor economists, which typically

find that federal workers are overpaid (e.g., Gyourko & Tracy, 1988; Moulton, 1990),

but we shift the focus to state and local governments (SLGs), which employ three

times as many workers as the federal government (Madland & Bunker, 2011). We

expand on prior research by examining trends in pay comparability over the past quar-

ter century and by examining trends separately for state and local governments; for

women and men; for non-Hispanic Whites, Blacks, Latinos, and Asians; and for six

levels of educational attainment. Using U.S. Census data from 1990 through 2014, we

first estimate public–private differences in annual earnings of full-time, full-year

workers of the same educational attainment, age, race/ethnicity, sex, immigration sta-

tus, and state of employment. Second, we adjust for the higher benefits in SLGs using

the aggregate estimates from the National Compensation Survey (NCS). Third, we

restrict our analysis to similar employees working in the same occupations. Conclusions

depend strongly on which approach we take, but all suggest that pay is higher in local

than in state governments and that Blacks, Hispanics, and employees without college

diplomas earn higher pay in SLGs than in the private sector. This is not always true for

Whites, Asians, and college graduates. SLG–private pay differences vary widely by

occupation, and wealthy states with more liberal and Democratic legislatures pay bet-

ter, relative to the private sector.

Pay Comparability: The Principle and Previous Research

Although average salaries are much higher in SLGs than in the private sector, govern-

ment workers’ higher educational levels, lengthier work experience, and higher prob-

ability of holding professional or administrative positions may justify that pay

difference. To correct for federal–private differences in employees and jobs, the

President’s Pay Agent (made up of the Secretary of Labor and the Directors of the

Office of Management and Budget and the Office of Personnel Management) uses

Bureau of Labor Statistics (BLS) data to compare the pay of federal and nonfederal

workers doing work of the same level in the same occupations in the same locality pay

areas. They estimate that in 2013, federal employees were underpaid by 22% to 49%,

on average, depending on their location, with underpayment more extreme at higher

levels of the civil service (President’s Pay Agent, 2014).

In contrast, labor economists compare the wages of public and private sector work-

ers with similar individual characteristics. Economists argue that, in competitive mar-

kets, firms hire employees until the last worker produces just enough to pay the cost of

employing him or her. On average, they argue, firms can neither overpay workers

(because that would raise the cost of their goods and make them less competitive) nor

underpay them (because workers would move to firms that pay market wages). This

makes wages a good proxy for productivity. Human capital economists argue further

that workers invest in their own productivity through education and on-the-job train-

ing, the latter of which they pay for largely by accepting jobs that combine lower