Justin Fox Inadvertently Makes the Case Against Empiricism

On the question of whether Federal workers are overpaid relative to private sector workers, He writes,

The Federal Salary Council, a government advisory body composed of labor experts and government-employee representatives, regularly finds that federal employees make about a third less than people doing similar work in the private sector. The conservative American Enterprise Institute and Heritage Foundation, on the other hand, have estimated that federal employees make 14 percent and 22 percent more, respectively, than comparable private-sector workers.

Pointer from Mark Thoma. My comments:

1. The empirical estimates are supposed to “control for” the many factors that could affect salaries: benefit packages, education level of workers, other measures of skill, etc. But obviously, there is no clear and unambiguous choice of how to control for these factors, or else everyone would get the same estimate. Ed Leamer hit the profession over the head with this 35 years ago.

2. Could you have predicted ahead of time which organization’s “research” would find a result favorable to Federal workers and which organization would find unfavorable results? Of course you could. So how do you sustain the belief that normative economics and positive economics are distinct from one another, that economic research cleanly separates facts from values?

3. A number of us have observed that the rate of exit from the public sector to the private sector is not terribly high, and that the ratio of applicants to vacancies in public sector jobs is not terribly low. If public sector pay were too low, you would expect government agencies to be rife with unfilled positions, due to high exit and low entry.

4. Point (3) is an example of what Noah Smith would dismiss as “casual intuition.” But in this instance, I would argue that casual intuition has a higher signal-to-noise ratio than does formal empiricism.

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8 Responses to Justin Fox Inadvertently Makes the Case Against Empiricism

  1. Dave says:

    Both sides are missing the problem with federal employment, which is its tenure for life. On the hiring side the problem is an emphaisis on administrative qualifications over competence.

    • Handle says:

      I’m convinced general competence at the entry level is just very hard to judge from anything but repeated observation, though some basic test of general intelligence and background checks for reliably predictive red flags are good screening filters for candidates to be evaluated further. Most new recruits have to be trained up on the job to perform their tasks and fit in with the culture and the team, and whether that learning is progressing well and the individual is on the right path is usually apparent in a short time.

      That argues for easy, minimal-scrutiny entry but short probation and then either high attrition or fast promotion into more vested positions. That’s your traditional military model of assessions, though that is changing too.

      However, that model is very hard to implement formally when there are many hard-to-change laws concerning hiring and firing and employee rights, and plenty of opportunities for liability and lawsuits to spring up regarding every step of the process. In practice, many organizations and supervisors, including those in the civil service, do what they can to replicate aspects of this approach informally.

  2. Lord says:

    Too low, no, but low, likely, since they are trading off income for stability. It doesn’t take much variance to draw down the average. More applicants just mean higher selection quality. Too high perhaps, but much is outsourced to lowest cost providers.

  3. Andrew' says:

    I’m sure someone in federal government does stuff just like I do because we have the same education attainment level.

    • Andrew' says:

      Just like someone at the FHA might do “roughly the same work” as someone at a hedge fund or investment bank. Just like women do the same work as men.

      It is all controlled for, and since there are still discrepancies, it isn’t because we didn’t actually control for the important bits or some unknown unknowns.

      Dear Jesus, please make me stupid. I just can’t take it anymore.

  4. GC says:

    One possible problem is that the salaries many federal positions are fixed; even if you can’t fill the position you can’t raise the salary. I know that this is true at the university where I work. Just a thought.

  5. Jack PQ says:

    Your point (3) might appear to be just casual intuition, but any honest economist should admit that it can also be shown from a formal economic model. So it is not sloppy reasoning but rather sound economics.

    I think (3) is a pretty open-and-shut case, with the caveat that some people (e.g. mothers with young children) may be risk averse and unwilling to chance short term unemployment even if there is an expectation of a much better paid job out there. But since this group is not a large proportion of all federal workers, it does not undermine much the argument.

  6. spencer says:

    I suspect part of the different results stems from the point that the federal government pay both too little and too much compared to the private sector.

    Federal pay tends to be too high at the low end of the wage scale. The problem is so severe that most pars of the federal government subcontract things like janitorial care to private firms. Even governmental organizations react to incentives.

    On the other hand government frequently under pays for highly skilled and/or managerial professionals. The consequences is that much of the upper reaches of the federal government most employees are barely qualified for their jobs. You do not get the superstars you find in private firms.

    Given this structure I am not surprised that different researchers get conflicting results.

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