Monday, October 14, 2013

Public Wage and Private Wage

Upon considering The Government Portion of Wage and Salary Disbursements, Gene Hayward said

Is there any value at looking at the ratio of Private sector wages relative to Govt sector wages and what that graph might look like? Best I could tell by eyeballing the ratio falls into an average of 4.6 or so.

Perhaps the most succinct answer would take the "Government Portion of Wage and Salary Disbursements" graph from that post, tweak it to show the Private Sector Portion of Wage and Salary Disbursements, and let it go at that.

Graph #1: The Private Sector Portion of Wage and Salary Disbursements
But I didn't do that. I'm not very good at "succinct". I went straight to FRED, did a quick search, and found three data series to start with:

  • All Employees: Total nonfarm
  • All Employees: Government
  • All Employees: Total Private Industries

I thought: If I add Government and Total Private together and the result matches Total nonfarm on a graph, then the Government series and Private series provide a breakdown I can use. (I also found All Employees: Government: Federal. So I assume "All Employees: Government" includes more than just Federal employees.)

Graph #2: Employment: Total Govt (red), Total Private (green), and Total (blue)
Strikes me that the red line is much smoother -- much less responsive to recession than the green and the blue. Maybe that's because the red line is so much lower?

Graph #3: Like Graph #2 but with the Red Line Times 5
Multiplied the red line by five, and it's still way smoother than the others. It shows an up-jog for World War Two, an up-jog  in the mid-1960s (related to inflation or the baby boom, maybe), a down-jog with the 1980 and '82 recessions, and a down-jog with the recent recession. But it doesn't rise and fall with every business cycle. The government isn't the same as the private sector. The government isn't the same as a household.

So let me add the red and green lines from Graph #2 together and see if they add up to the blue line:

Graph #4: Red (Total Government plus Total Private) equals Blue (Total Employment)
They sure do.

So I have numbers now that I can use. Of course, they're not the private sector wages and government sector wages that Gene was talking about. They're employment numbers. But that's okay. I can take the government portion of wage and salary disbursements and divide it by the number of government employees to get a ballpark number for government sector wages. Likewise for the private sector, and I've got public and private average wage numbers to compare.

I love it when a plan comes together.

I re-created Graph #2 at FRED and downloaded the numbers. Then I deleted that download, changed the graph to show annual values, and downloaded the numbers I needed.

I put the annual employment numbers from FRED and the annual wage and salary numbers from BEA together in a Google Drive spreadsheet. Divided the private portion of wages and salaries by the private employment number, and multiplied by a million to make the units reasonable. Did the same for the government numbers. Produced this graph:

Graph #5: "Wages and Salaries" per Employee, in the Public and Private Sectors
The Google Drive Spreadsheet is available
What struck me first is how close the two lines are. Then I got wondering if my results are good. So I Googled average wage in us.

The Official Social Security Website says "The national average wage index for 2011 is 42,979.61." For 2011 the numbers on Graph #5 are $50 thousand and $54 thousand, a good deal higher than the Social Security number...

My Budget 360 reports a median household income ($50,502) which is very close to my numbers; but that is a median household number and mine is an average per employee....

The BLS Occupational Employment Statistics dated May 2012 lists an "annual mean wage" of $45,790 for "all occupations". This is the category I need to compare, but my number is 5 or 10% high...

The unreliable Huffington Post, home of illiterati, reports that "The annual median wage fell in 2010 for the second year in a row to $26,364, a 1.2 percent drop from 2009, and the lowest level since 1999, according to David Cay Johnston at Reuters." While I will never again trust the Huffington Post, I do trust David Cay Johnston. But his number is somehow skewed down to half what I came up with (perhaps by omitting salaries?) and is well below the other numbers that are lower than mine.

Finally, Wikipedia reports an average annual wage of $42,050 for the US in 2011 -- but that's disposable income; they also report a gross of $54,450. I'm right in the ballpark with that last number.

I'm sticking with my number because I can justify it, based on my source numbers. I'm going to assume that my numbers are close. If I have it wrong, let me know.

So how close are my numbers? How close to each other, I mean. The red line, average government wage, runs above the average private sector wage for all the years on the graph. But how much higher is it? I took a ratio of the two:

Graph #6:Average Government Wage relative to Average Private Sector Wage (US Data)
It's the same Google Drive Spreadsheet as Graph #5

Monster peak during World War Two. Set that aside.

There is a persistent downward trend. By my numbers, the government wage was maybe 20% higher than the private sector wage in the late '50s, early '60s. Maybe 15% higher in the late '80s, early '90s. And less than 10% higher since the War on Terrorism began. The government wage is always higher than the private wage, but by less and less as time goes by.

That reminds me of an article from the Science News Letter, from back in 1962. The article worries that declining government pay (relative to private sector pay) will harm the progress of science. I think it is safe to say that government wages have been falling, relative to private sector wages, for a long time.

I think it is safe to say the popular impression that government workers are grossly overpaid, is incorrect. As Graph #1 shows, private sector workers have been gaining on government workers since the 1970s.


Gene Hayward said...

Thanks, Art! This goes above and beyond my expectation when I asked the question.

I think this result would surprise a lot of people---govt wages, per person higher than private wages, per person AND that it has declined.

However, it probably shouldn't because there is certainly a higher de facto wage floor with govt workers based on an average higher educational attainment level. This is not taken into account, for the most part, by the great unwashed.

Lots to ponder and I appreciate the level of attention you paid to the question.

Jazzbumpa said...

As Gene points out, Govt includes highly skilled researchers at NIH and Oak Ridge, and private includes minimum and sub-minimum wage earners.

With Real income on the decline, i wouldn't say that private workers are gaining. I'd say that Gov' worker are losing ground faster.

By the way - for comparable job descriptions, Govt almost always pays less than industry.


The Arthurian said...

Well I was certainly not comfortable, coming up with the result that the government wage is higher than the private wage. But I feel better about it, after reading the above comments.

David Cay Johnston said...

You cite my work, but seem not to grasp that MEDIAN and AVERAGE are not the same.

The figures I reported (when I was a columnist for Reuters) are from the W-2 reports filed for every workers from busboys to CEOs and cover all compensation for services -- wages, salaries, stock options, bonuses. Fringe benefits (health insurance, holiday pay, vacations) are NOT included.

The sources I relie don are cited and you can check the data.

The median has been flat, when adjusted for inflation, since 1999, but the average has been rising because high-end workers are getting real increases.

I have also written about this for Tax Analysts (Google for "An Inch to Five Miles") and National Memo.

The Arthurian said...

I certainly glossed over it, David Cay. To get into the drearies, then:

My Budget 360 reports a median household income ($50,502) ...

Huffington Post, home of illiterati, reports that "The annual median wage fell in 2010 for the second year in a row to $26,364..."

Leaving aside the question of how the median wage could fall to the same number two years in a row, I am left thinking there must be 50502/26364 or about 1.9 workers in the median household. Okay, that's probably a reasonable number.

I like that Tax Analysts post.

David Cay Johnston said...

Income is more than wages. But wages are by far the largest share of income and wage-like devices (retirement plans, which are deferred wages) are tiny compared to wages. And when I say wages I mean all forms of compensation for services.

Census counts fringe benefits.

Also, wages are per worker and a household may have more than obe worker.