Why the Issue of Overpaid Government Workers Matters

Jason Richwine / August 18, 2010

Government workers probably aren’t overpaid, and even if they are, we shouldn’t care. This is Paul Krugman’s message in a recent blog post that takes on the critics of government pay. He is wrong on both counts.

The Heritage Foundation has written extensively about public-private pay disparities, and we have found consistent evidence that government workers are overpaid, even after controlling for skill differences between the private and public sectors. Federal workers receive both wages and benefits above market levels. State and local workers receive sub-market wages, but they make up for it (and then some) with excessive benefits.

Krugman focuses on state and local workers, whose compensation is a bit tricky to compare to private workers. Some analysts calculate total state and local benefits using yearly government contributions to retirement and health funds. However, some states are currently underfunding the pension plans. In other words, what state and local governments pay for these benefits may greatly understate what their employees must eventually receive. (more…)