The Ramifications of Higher-Paying Government Jobs
This lackluster economy of the past few years hasn't been bad for everyone. Sure, millions of Americans have lost their jobs in manufacturing facilities, technology companies, and throughout a plethora of large corporations and small businesses. Yes, states such as Nevada and Florida have experienced atrocious declines in their housing markets, and many states have seen the incomes of their residents actually fall over the past few years.
But not in Washington, D.C., as these are merry days under President Barack Obama. After all, according to Census data collected by CNN Money, it is none other than Washington, D.C. that has seen its median household income rise by 12.1% from 2007 through 2010. Of course, it should come as no surprise that during a time of unprecedented and reckless government spending, the best chance that a family has for its income to rise is to live in the nation's capital.
The total number on the federal government payroll has certainly increased under Obama -- about 144,000 from January 2009 through January 2011. But the bigger issue is that these employees, whether they work outside or within Washington, D.C., tend to benefit from higher salaries than their counterparts and salaries that increase proportionately more than comparable private-sector positions. In addition, with pay freezes or limited salary increases across many companies, the wage gap between the haves and have-nots -- that is, between the federal employee and the private-sector employee -- has widened over the past few years. This is an alarming trend, and it could be detrimental to the United States in the coming years.
In fact, according to research conducted by The Heritage Foundation, the actual wage gap is 8% in favor of the federal government employee versus the comparable private-sector employees at the onset of his or her new position, whatever that might be. Worse yet, the gap tends to widen to some 14% throughout the person's career, according to a study by the American Enterprise Institute.
These are staggering gaps. Consider a private-sector employee who makes $100,000 per year. His mirror-image government employee earns $114,000 per year. Assume that the salary for each is frozen over a ten-year period. The total earnings gap for that period would equal $140,000 in gross compensation.
The gap would further widen if we assume that each employee receives a 3% salary increase per year. If this is the case, the ten-year gap increases to $160,494.
Some may question why this is important. Quite simply, with the gap as wide as it is, and with the potential for a safe and lucrative pension, there is greater incentive for individuals to seek government careers than to seek private-sector careers.
MBA students, as an example, who once sought out positions in finance, health care, or business, are increasingly looking at opportunities in the federal government. People as a whole are motivated by incentives when it comes to making decisions (read the Freakonomics books for further insight) and especially in regards to choosing a career.
This presents a problem long-term for the United States. With incentives so strong to enter the federal government workforce, in theory, more individuals will forgo the private sector. This is problematic because the private sector is where we get most of our innovations and breakthroughs and enhancements that improve our quality of life as Americans. In addition, it's the private sector, not the federal government, that creates most of our jobs and in turn fuels our economic growth.
To put it all in perspective, imagine if the late Steve Jobs were to have spent the past ten years as Secretary of Commerce instead of at the helm of Apple. Not only would we be absent the innovations such as the iPhone and the iPad, but think of the thousands upon thousands of jobs created by the forward thinking of one man.
We need individuals working in the federal government, no doubt. But when the incentives to work for the federal government become as large as they are now, it may very well drive future production and innovation from the private sector. That may well limit the innovations and developments that could enhance our quality of life -- and potentially also limit the economic growth of America in the future.
Chad Stafko is a writer and political consultant living in the Midwest. He can be reached at firstname.lastname@example.org.