Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years


This report, commissioned by the Center and the National Institute on Retirement Security (NIRS), provides an original analysis of data from the U.S. Bureau of Labor Statistics. (4/21/10)

Center for State and Local Government Excellence and National Institute on Retirement Security
Publication date:
April 2010
Filed under:
Research Studies
Key findings:
  • Jobs in the public sector typically require more education than private sector positions. State and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23 percent of private sector employees have completed college, as compared to about 48 percent in the public sector.
  • Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants, such as education and work experience.  State workers typically earn 11 percent less and local workers 12 percent less.
  • During the last 15 years, the pay gap has grown: earnings for state and local workers have generally declined relative to comparable private sector employees.
  • The pattern of declining relative earnings remains true in most of the large states examined in the study, although there does exist some state level variation.
  • Benefits make up a slightly larger share of compensation for the state and local sector.  But even after accounting for the value of retirement, health care, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8 percent lower for state employees and 7.4 percent lower for local employees than for comparable private sector employees.
Download publication:
Out of Balance_FINAL REPORT_10-183

The picture is clear. In an apples-to-apples comparison, state and local government employees receive less compensation than their private sector counterparts,” said Keith A. Bender, report co-author and associate professor, Department of Economics at the University of Wisconsin-Milwaukee. “These public sector employees earn less than they would earn if they took their skills to the private sector.”

Government jobs require education and skills

“Jobs in state and local governments consist disproportionately of occupations that demand more education and skills,” added report co-author John S. Heywood, distinguished professor, Department of Economics at the University of Wisconsin-Milwaukee. “Indeed, accounting for these differences is critical in understanding compensation patterns.”

Some jobs are hard to fill – pay may be a factor

The study sheds light on a recent Center survey of government hiring managers. Elizabeth K. Kellar, president and chief executive officer of the Center reported, “Hiring managers told us that despite the economy, they find it difficult to fill vacancies for highly-skilled positions such as engineering, environmental sciences, information technology and healthcare professionals.  The
compensation gap may have something to do with this.”

Even with benefits, government jobs pay less

Beth Almeida, NIRS executive director said, “For a long time, there has been a compensation trade-off in public sector jobs – better benefits come with lower pay as compared with private sector jobs.  This study tells us that is still true today.” She added, “What’s striking is that on a total compensation basis – looking at pay and benefits – employees of state and local government still earn less than their private sector counterparts.”