Two Questions for Orszag
By Bryan Caplan
I’ve got two questions for Peter Orszag:
1. You claim that education and age differences explain the entire difference in average pay between federal employers and other workers. Does “average pay” include benefits? The salary gap reported in USA Today was only about $8k, but the reported benefits gap was an additional $31k. I’m almost sure that you’re not counting benefits – a massive oversight.
Here’s why. According to Peter, educational differences account for 82% of the earnings gap, and federal workers are roughly 17 percentage-points more likely to have a college degree. Even with a 70% return to college, education and age combined would only explain why federal employees’ earnings are .17*.7/.82=14.5% higher. That’s just about right for the salary gap, but it appears to leave the massive benefits gap entirely unexplained. Am I wrong, Peter?
2. Federal workers have a lot more job security than other workers – especially today. Extra job security is yet another benefit that federal workers enjoy,
but since it’s intangible, it’s almost certainly not included in the
official value of their salary or benefits. So by the logic of compensating differentials, Peter, shouldn’t federal workers’ measured (salary + benefits) be lower than comparable workers get elsewhere?