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More on the Government Job Premium

On Monday, I asked what might explain the 20% difference in wages between government and private sector workers who hold similar jobs. Writing on, Joshua Zumbrun argues that I (and Nancy Folbre, who also defended government wages on Economix) fail to account for the job security involved in having a public sector job:

It's just... obliviousness... not to recognize the value of having job security in this economy. I mean, have either of these writers been to Michigan in the last couple of years?...Fear of job loss is a constant and considerable stress for nearly everyone I know in private sector jobs.

When you compare hiring and firing patterns in the two sectors, job security does only seem to come into play during downturns as Zumbrun claims. This chart plots the ratio of private to public sector rates for hirings and firings:

Since 2001, the firing rate in the private sector was an average of 3.5 times the rate in the public sector, while the hiring rate for the private sector averaged 2.7 times the rate in the public sector. This difference does indeed seem to be largely driven by the change in firing rates in the private sector during recessions.

Still, it's not clear why increased job security would explain some or part of the public sector wage premium. If anything, knowing that you'll earn a certain salary with a high probability should make you more willing to accept less. 

A couple more thoughts on this:

- Alan Krueger, now with Treasury, wrote a paper on public-private pay differences in 1988 and found a similar premium for public wages. One intriguing cause he puts forth for this is that the government is just acting like any other big employer:

it should be noted that some large private sector firms pay wages that are at least as high as the federal government and that wages apear to rise with employer size (see Brown and Medof 1985). The federal government, it should be remembered, is the single largest employer in the U.S. Although the reasons for the employer size-wage effect are far from clear, the federal wage premium may be closely related to the size of the government.

- And there's evidence that public-private pay gap is largely driven by pay at the federal level. Most of these jobs are likely in Washington, D.C., which by a couple recent accounts is one of the most expensive cities in the U.S. (and the world) to live in. So, some of the public pay premium could be chalked up to the relatively higher cost of living in the nation's capital.

(NOTE: This is a slightly tweaked version of an earlier post. Upon reflection, I decided to give more credit to Zumbrun here for pointing out the job security factor in public sector jobs.)