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

Date01 September 2018
DOI10.1177/0734371X16671370
Published date01 September 2018
Subject MatterArticles
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

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