In criticizing President Trump’s decision to withhold a cost-of-living increase for federal workers, Paul Krugman writes:
Federal workers with low levels of education are paid more than their counterparts in the private sector — but do you really want our government to emulate the always-low-wages policies of, say, fast food chains? More educated workers, on the other hand, are paid substantially less than private-sector equivalents, and CBO finds that overall the federal government pays only about 3 percent more than it would if it matched private pay schedules.
Four Pinocchios! An economist with less of a political axe to grind would have specified that federal wages are 3 percent higher, but that wages are only part of compensation. The same CBO report found that federal benefits are 47 percent higher than private-sector levels. Combine wages and benefits, and the average federal employee enjoys a 17 percent compensation premium. Furthermore, “more educated” federal employees are paid less only when we are talking about people with professional degrees and doctorates. Federal employees with bachelors’ and masters’ degrees still receive a premium.
But what about Krugman’s point that the federal government should not pay its less-educated workers the “always-low-wages” found in the private sector? That’s a union talking point that I’m surprised to see an economist repeat. One can be concerned about the low-skill labor market — I certainly am — without supporting special privileges for people with government jobs. All federal employees should receive market-level compensation, and attempts to bolster low-skill wages — with the EITC, for example — should apply economy-wide. Unless you’re a union boss, there is simply no reason to favor public workers over private workers.
Now, across-the-board wage reductions are hardly the best way to reform federal compensation. I would prefer that Congress enact structural changes such as phasing out the FERS annuity, loosening tenure restrictions, and allowing more merit-based pay. Until then, however, withholding the annual pay increase is a reasonable cost-saving measure.