Pay Gap Report Misses Big Picture, Fails to Resolve Whether Outsourcing Saves Money

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The Congressional Budget Office (CBO) caused a minor commotion around Washington last week when it released its latest analysis—laden with caveats—comparing federal government and private sector pay. The CBO determined that total compensation for federal workers was 17 percent higher, on average, than for comparable workers in the private sector from 2011 to 2015. The pay gap has increased slightly since the CBO last studied this issue in 2012.

The CBO found that federal civilian workers whose highest level of education was a bachelor’s degree earned 21 percent more in total compensation (wages and benefits) than similar private sector workers, and federal employees with no more than a high school education earned 53 percent more than similar workers in the private sector. (Benefits—e.g., health insurance, retirement packages, and paid leave—for federal employees with a high school diploma or less were an astonishing 93 percent higher.) But anti-big government types who resent those supposedly overpaid bureaucrats can take solace in the CBO’s finding that federal workers with a professional degree or doctorate earned 18 percent less, on average, than their private sector counterparts.

CBO Chart
(Source: Congressional Budget Office report, "Comparing the Compensation of Federal and Private-Sector Employees, 2011 to 2015", April 2017)

However, the numbers must be taken with a grain of salt. The CBO cautions that the comparisons are complicated by a host of statistical variables. “Even among workers with similar observable characteristics,” according to the CBO, “employees of the federal government and in the private sector may differ in other traits…that are not easy to measure but that can matter a great deal for individuals’ compensation.”

But the real elephant in the room—the one pro-outsourcing interest groups wish everyone would ignore—is that the CBO analysis did not factor in the cost of hiring private sector employees as government contractors.

In our 2011 Bad Business report, the Project On Government Oversight found that while federal employees generally make approximately 20 percent more in full compensation than comparable workers in the private sector, contractor employees working for the federal government cost, on average, 83 percent more than federal employees. We were also astonished to discover that contractors’ billing rates were, on average, 109 percent more than the total compensation paid in the private sector for comparable services.

The government should strive for the most cost-effective workforce mix. This requires a cost comparison model that compares the long-term, fully burdened costs of civil servants with those of contractors. Analyses by the CBO and the Government Accountability Office fail to take into account the contractor-cost side of that equation. Until we develop a truly uniform, effective cost comparison model, pay gap studies will serve no purpose other than to provide an opportunity for political grandstanding.