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BREAKINGVIEWS-US could save by cutting public sector pay

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

WASHINGTON, Feb 3 (Reuters Breakingviews) - The European Union wants financially strapped Greece to cut the pay of government employees. The same prescription could help in the deficit-ridden United States. Including benefits, civilian federal employees are on average paid double what private sector employees get.

Federal employees are on average older and somewhat more highly qualified than private sector employees, although fewer have the highest educational qualifications. A moderate premium over private sector remuneration is thus justified. But this premium has increased dramatically in the past decade or so.

In 1998, the average civilian U.S. government employee’s wages were 36 percent higher than in the private sector. Including much more generous benefits, total compensation was 70 percent higher in the public sector -- a significantly smaller premium than today’s.

State and local government employment costs have also risen faster than private sector employment costs, by 15 percent from 2005 to 2009 compared to 10.4 percent in the private arena, even though state and local governments have been budget-pinched by the recession. State and local employees currently receive a smaller premium over the private sector than federal workers, but are on average less qualified than the private sector.

The expansion of the public sector premium is partly due to the fact that government jobs are more recession-proof than private sector jobs. One elegant way to recognize this benefit could be to discount federal pay scales by the unemployment rate, so that with 10 percent unemployment bureaucrats would receive only 90 percent of their scheduled pay. Their remuneration would then increase faster than inflation as economic recovery occurred.

Rolling federal employee pay back to where it was in 1998 relative to the private sector and shifting state and local government pay back to 2005 relative levels would save $116 billion annually from government costs. The EU suggests the Greek government should replace only one in five retiring employees. While any cuts in pay or benefits would be controversial, the U.S. government wouldn’t have to do anything that drastic to make big savings.

CONTEXT NEWS

-- The European Commission, in a report issued Feb. 3, suggested that Greece should cut public sector pay costs by replacing only one of every five retiring civil servants.

-- In the United States, average civilian federal wages per full-time employee were $79,197 in 2008, compared to private sector wages per full-time employee of $50,028, according to Bureau of Economic Analysis data. Including benefits, total compensation per employee was $119,932 in the public sector compared with $59,909 in the private sector.

-- The premium for federal employees over private sector employees has increased since 1998 in wages from 36 percent to 58 percent and in total compensation from 70 percent to 100 percent.

-- The Bureau of Labor Statistics’ Employment Cost Index for private sector employees increased by 1.2 percent in 2009 to 110.4, with the index set at 100 in 2005. For state and local government administrative employees it increased by 2.4 percent to 115.0.

-- Public sector employment costs in 2008 totaled $1.6 trillion, of which $467 billion related to the federal government and $1.1 trillion to state and local governments.

-- For previous columns by the author, Reuters customers can click on [HUTCH/]

Editing by Richard Beales and Martin Langfield

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