Whether the subject is improved health care or reforming defense acquisition, the relative cost of private sector versus government workers is almost never considered when looking at public versus private sector solutions. Yet, virtually all recent studies indicate that the overall cost of the federal workforce, when salaries and all benefits are included, is substantially higher than for a comparable private sector workforce. When the greater flexibility of private sector workers also is factored in the comparison – they can be terminated or moved to other jobs much more easily than government workers – it is clear that the taxpayer gets a better deal when as many activities as possible are performed in the private sector.
Recently, the Bureau of Labor Statistics published a report that compared both salaries and total compensation for equivalent public and private workers at the state and local levels. The results were shocking. Public sector employees cost about 45 percent more than their private sector counterparts. Public employee salaries averaged $43 an hour while the private sector rate came out to a little less than $29 an hour. While this 33 percent difference is bad enough, it is nothing compared to the gap in benefits. Private sector workers get on average $8.87 in benefits per hour while their state and local counterparts receive more than $15.00 an hour. The gap in the pension and retirement portion of the benefits package between private and public sector workers is a whopping 245 percent.
This most recent survey should not come as a surprise. A 2012 study by the Congressional Budget Office found that the total compensation for all federal workers (salary and benefits) was 16 percent higher than for private sector workers. Most interesting, the CBO found that the disparity was greatest for workers with no more than a high school education: 21 percent more in salary and 72 percent more in benefits. For workers with a professional degree, the CBO concluded that private sector workers earned about 23 percent more in salary and received equal benefits.
The Government Accountability Office compared five different studies on public-private pay and compensation including the CBO study. While each of these used somewhat different data sets and methodologies, the results were remarkably consistent. CBO had the smallest overall difference at 16 percent. For the other four, the differential in total compensation was 20, 30-40, 61 and 100 percent in favor of federal workers versus those in the private sector.
When calculating the cost of government-managed programs and government-provided services it is important to consider the fact that every worker on the government payroll, regardless of whether at the federal, state or local level, costs money and more than their civilian counterparts. Every new government program comes with a hefty price tag in terms not only of the resources to pay for whatever services are provided but the salary and benefits of the additional workforce that must be hired. While it is mandatory that government employees conduct work that is inherently governmental, this is only a small fraction of the total work load of the millions of government employees. The rest should be opened up to competition by the private sector.
Such competitions can save money. Between 1997 and 2009, public-private competitions for defense logistics and sustainment work conducted under the direction of the Office of Management and Budget Circular A-76 saved $9 billion in operating costs and reduced manpower by 40 percent. Unfortunately, the public sector unions didn’t like the pressure put on them by the A-76 process, even though the public sector work force won a significant number of the contests. So they got their allies in Congress to put a halt to additional A-76 competitions.
In an era of continuing budget deficits at all levels of government and with sequestration cutting resources available for both domestic and defense programs, it makes no sense to maintain and even expand a massive government workforce that is demonstrably too expensive. At the very least, the federal government needs to radically expand the use of public-private competitions to drive down the cost of its programs.
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