Doing the Math

February 7, 2012
Posted by Jay Livingston

My students sometimes have trouble with math, even what I think is simple math.  Percentage differences, for example.  I blame it on the local schools.  Once I explain it, I think most of them catch on. 

Stephen Moore is not from New Jersey.  His high school diploma is from the highly regarded New Trier, he has an economics masters degree from George Mason, and he writes frequently about economics.  A couple of days ago he wrote in the Wall Street Journal (here) about how much better it was to work for the government than for private employers.* 
Federal workers on balance still receive much better benefits and pay packages than comparable private sector workers, the Congressional Budget Office reports. The report says that on average the compensation paid to federal workers is nearly 50% higher than in the private sector, though even that figure understates the premium paid to federal bureaucrats.

CBO found that federal salaries were slightly higher (2%) on average, while benefits -- including health insurance, retirement and paid vacation -- are much more generous (48% higher) than what same-skilled private sector workers get.
It’s not clear how Moore arrived at that 50% number.  Maybe he added the 2% and the 48%. 

Let’s assume that the ratio of salary to benefits is 3 - 1.  A worker in the private sector who makes $100,000 in salary would get $33,000 worth of benefits. The government worker would get 2% more in salary and 48% more in benefits. 

Salary 100,000 102,000
Benefits   33,000 49,500
Total 133,000 151,500

If total compensation for private-sector workers is $133,000, and if government workers were getting 50% more than that, their total compensation would be $200,000. But the percentage difference between the $150K and the $133K is nowhere near 50%.  The government worker pay package is 14% higher. 

I think I could explain this so my students would understand it.  But then again, they don’t write columns for the Wall Street Journal.

* The WSJ gives the article the title “Still Club Fed.” The more accurate title would be “Government Jobs Are Good Jobs.” Of course, the latter takes the perspective of people looking for work, a viewpoint that doesn’t get much consideration at the WSJ.


PCM said...

My mom taught at New Trier. But she taught German and Spanish, so I think she is blameless.

Personally, I never did trust them Trevians.

Anonymous said...

hmmmm... i'm with you on this, but the benefits go on for years too, no??? so it's not as simple to calculate for him or you.... dunno...