Lawrence Mishel, president of the Economic Policy Institute (EPI), does not like President Obama’s call for a two-year pay freeze. He writes:
[The freeze]…will only enlarge the degree to which federal pay lags that of the private sector (a gap of 22%, according to the federal pay agent’s report. See Table 4.) ….and in the process [it] reinforces conservative myths, in this case the myth that federal workers are overpaid.
This statement is not merely false, but also intellectually inconsistent. First the “false” part: Labor economists have been documenting a federal pay premium for decades. After controlling for a large set of worker characteristics—age, education, experience, race, gender, etc.—federal workers earn more in wages than comparable private sector workers. This is not a partisan claim, much less a “myth”—it’s a factual summary of the academic literature.
To support his claim that federal workers are actually underpaid, Mishel cites the President’s Pay Agent report. As we have stated many times, the Pay Agent uses an entirely different methodology, one that attempts to compare job duties rather than individual skills and qualifications, which is wholly inadequate. This is why labor economists overwhelmingly prefer the human capital model, which compares individual workers with the same characteristics.
Mishel’s statement is inconsistent with his own organization’s report on state and local pay. To show that state and local workers (not federal workers) make slightly less in wages than comparable private sector workers, the EPI report uses the very same human capital model that shows federal workers are overpaid. In fact, it explicitly rejects job-based comparisons of the kind the Pay Agent uses.
In other words, EPI embraces the human capital model when it shows one set of public workers (state and local) is underpaid, but it rejects the same model when it shows another set (federal) is overpaid. How about some consistency?
(On a side note, it is critical to distinguish between federal workers on the one hand, and state and local workers on the other. Their situations are quite different, and we must analyze them separately. For a discussion of how EPI and others undervalue state and local pension and health benefits, see my American Spectator article coauthored with AEI’s Andrew Biggs.)