Government and Private-Sector Average Wages

by Erik Knoder

September 18, 2017

It takes less than 30 seconds on the Oregon Employment Department’s website for labor market information, www.QualityInfo.org, to see that published wages for government workers are different, and usually higher, than private-sector workers. A quick glance at employment and wages by industry data under the Economic Data tab will show that Oregon’s private-sector workers made an annual average wage of $48,864 in 2016 versus $72,192 for federal workers, $47,636 for state workers, and $51,452 for local government workers. Before you either celebrate fair wages or start throwing tea in Portland harbor in protest, let’s look at some of the reasons wages are different in the public and private sectors. The public and private sectors also have different industrial and occupational mixes, and different hours of work. One quick note, this is not an analysis of public and private-sector total compensation that compares comparable work. It is simply a look behind some of the average wages that we regularly publish.

Different Industries

The principal reason that public agencies have different average wages from private businesses is that they engage in different operations and often employ workers with different skills. Although there can be considerable overlap between the types of enterprises run by governments and private businesses, the emphasis, or volume, is different. For example, there are government manufacturing and financial operations in Oregon, just not very many. And although both exist, there are many more workers in public education than private education.
The first table shows employment by major industry by ownership. Ownership is either private, federal, state, or local government. Nonprofit organizations are typically in the private sector. Indian tribal businesses and most public schools, including public universities, are in local government. The nearly 17,000 home care workers in Oregon are officially counted as state government workers although they work in private homes. The homecare program is overseen by the Oregon Department of Human Services. Since these workers are typically not thought of as regular state employees and their pay is quite different from other state workers, they are excluded from this analysis.

Governments have less industrial diversity than the private sector. Governments have significant portions of their employment in public administration, no surprise there. Roughly two-thirds of state government employment was in public administration. A little less than two-thirds of local government employment was in education and health services. About 55 percent of this was public K-12, and about 38 percent was universities and community colleges. Federal government employment is a little more spread out; natural resources, transportation (the U.S. Postal Service), health services, along with public administration all have significant employment.

Different industries pay different wages. Manufacturing and finance are well known as high-paying industries; leisure and hospitality is often criticized for paying low wages. Although industries tend to have similar wages across ownerships, there are exceptions. The natural resources and mining industry pays much higher wages under federal ownership than private. This industry is the U.S. Forest Service in federal ownership, and it is numerous logging and sand and gravel mining operations in private ownership. Trade, transportation, and utilities employment is dominated by the lower-paying retail trade industry in the private sector versus the higher-paying transportation industry (U.S. Postal Service) in federal ownership and in local government (TriMet, Lane Transit District).

This trend of higher pay in the public sector is reversed in a couple industries. The information industry in the private sector (software publishers, telecommunications) pays much higher wages than the information industry in local government (Fern Ridge Public Library, among others). Private-sector finance also pays a higher average wage than finance does to state or local government workers. The state finance sector is
mostly portfolio management done by PERS, which pays on average about half the private-sector wage in portfolio management. Local government finance is split between SAIF, an insurance provider, and a variety of real estate operations such as housing authorities, convention centers, and port districts.

Alert readers will notice that the annual average wage in the table for all state workers was $59,310 in 2016, but in the opening paragraph of this article it was given as $47,636. The difference is due to removing the home care workers, who have lower average wages, from this analysis of state workers.

Wage Growth

State and local government annual average wages grew faster than the other ownerships from 2006 to 2016, 39 percent and 35 percent, respectively. Private-sector average wages grew by 30 percent over the 10 years, and federal wages grew by only 21 percent. Of course, most prices also increased over that time. Portland’s Consumer Price Index for Urban Wage Earners, a common measure for inflation, increased by 22 percent during the same period, suggesting that the average federal wage decreased slightly in terms of real purchasing power.
Aside from general price increases, wages can change for a variety of reasons. Hours worked, changes in productivity, and changes in the occupational mix of industries also affect how wages change. Wages are often only part of employees’ compensation. Changes in providing other benefits, such as health insurance, can affect changes in wages. For many public employees complexity is added by legal changes, executive orders, and union contracts. During the Great Recession many workers, both public and private, had wages frozen or cut, hours reduced, and benefits trimmed. Gaining back wages, hours, and benefits can occur differently for different ownerships.

Most industries managed to increase wages more than inflation, but some fell short. Local government leisure and hospitality had the smallest wage gain over the period at only 8 percent. This is typically a lower-wage industry, but just an 8 percent gain in 10 years is surprising. The local government leisure and hospitality industry includes tribal casinos and recreation districts. The federal trade, transportation, and utilities industry, mostly the U.S. Postal Service, increased wages only 13 percent over the 10 years. The largest wage gain (+70%) was in local government’s professional and business service industry. This industry has grown with the ever-increasing use of computers for business processes, and computer-savvy occupations tend to pay well.

Occupational Differences

Wages are typically influenced more by occupation than by industry, and the private and public sectors have significantly different occupational mixes. As we saw above with types of industries, the private and public sectors also employ many of the same occupations. It is the frequency or number of workers in in those occupations that differs between ownerships.
The table shows the 15 most frequent occupations in Oregon for each ownership and their share of the total employment in that ownership. The three most common occupations in the private sector were retail salespersons, cashiers, and food preparation/serving workers. This reflects the size of the retail trade and leisure and hospitality industries. Not one of these three occupations made the top-15 list for federal, state, or local governments. In fact, the highest rank that any of these three occupations had in public sector was the 61st spot – held by food preparation and serving workers in the federal government.

The private and public sectors had only three occupations in common from their top 15 lists: general office clerks, registered nurses, and secretaries/administrative assistants.

A look at the average wages for these common occupations shows how the different occupational mixes affects the average wage for the entire ownership. The four most common private-sector occupations all had an average wage of less than $28,000 per year in 2016. In the public-sector none of the top four occupations had an average wage of less than $31,000.

In the private sector only two occupations, managers and registered nurses, in the top 15 had average wages of more than $50,000 per year. For federal, state, and local government workers, nine occupations had averages wages of more than $50,000. And it was not simply the case that occupations in the public-sector always paid more than in the private sector, though that was often the case.
The four ownerships had a total of 107 occupations in common in 2016. Of these, the private sector paid the highest average wage to 16 occupations, the federal government paid the highest wage to 57 occupations, state government paid the most to 11 occupations, and local government paid the highest wage to 23 occupations. Of these occupations, the 16 for which the private sector was the highest-paying employer were almost all professional or technical ones and they were often in the medical field. The state was the leader for some technician and support-type occupations. Local government was the highest paying employer for some technician and blue-collar occupations.

Hour Differences

Another difference between the jobs in the four ownerships is the hours worked. Full-time jobs tend to have higher average annual wages than part-time jobs, if for no other reason than employees can usually produce more by working more. The Oregon Employment Department collects information on hours worked by employee. The information does seem to have some occasional reporting errors, and it is incomplete for federal workers, so they are not included in this analysis. Nonetheless, the data from 2016 show that private-sector employees worked an average of 1,440 hours for the year; state employees, excluding homecare workers, worked an average of 1,722 hours (20 percent more); and local government employees worked an average of 1,391 hours (3 percent less). As a reminder, public schools are part of local government, and most public schools have a summer break for instruction workers.

We can compare these percentage differences in hours worked to the differences in average wages for all workers. State government wages were 23 percent higher than in the private sector, and local government wages were 5 percent higher than in the private sector. The additional hours worked by state workers with respect to private-sector workers might explain a good part of the difference in average pay. That doesn’t seem to be the case for local government workers.

Summary

Wages and wage growth are important economic indicators and personally important to workers and employers. When comparing wages it is important to look not just at broad averages, but also to look at comparable industries, occupations, and hours worked. Other factors, such as location, working conditions, education, skills, experience, and benefits, also affect wages, but were beyond the scope of the data available for this analysis. These data do show that for private and public sector workers differences in industry, occupational mix, and hours worked are related to differences in average pay.

 


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