Kelman: The impact of pay disparities

Every once in a while you read something that uses a small set of concepts to explain a lot about the world. John Donahue’s new book, “The Warping of Government Work” (Harvard University Press), is an example. (In the interest of full disclosure, I must say that Donahue is a Harvard colleague and a friend.)
The book is organized around a simple idea. In the past 20 years, a major change has occurred in the distribution of earnings in the private sector.

With growing demand for knowledge-intensive services, incomes for highly educated, highly skilled people have taken off. At the same time, globalization has brought many unskilled people from developing countries into the international market, and competition has caused incomes for people at the middle and bottom to stagnate.

However, this change has not occurred in the public sector. Because of the strength of public-sector unions (at the bottom) and public hostility to high salaries for government employees (at the top), the government’s wage structure is now far more egalitarian than its private-sector counterpart. That means blue-collar government jobs pay noticeably more than comparable ones in the private sector. For example, in 1970, the pay for postal employees was 10 percent higher than for high school-educated men in general; by 2000, it was 60 percent higher.

That trend also means that professional, highly skilled jobs in government pay noticeably less. In 2003, the average salary for the top 10 percent of information technology employees was 27 percent less in government than in the private sector. For top executives, the gap is much larger.

As a result, for those at the bottom, government jobs are a safe harbor from the turmoil facing unskilled workers in the rest of the economy, and those workers will fight hard to prevent changes in their work conditions. For those at the top, such jobs are a backwater, unattractive to the best and brightest.

Donahue uses that observation to explain many of the ills facing government. To protect their safe harbor, employees create strong unions, which act to inhibit changes that would allow agencies to better serve the people. Because government is a backwater for high-end employees, its effectiveness in handling complex tasks is reduced. It often inappropriately outsources jobs for which contracts are hard to manage or that involve core governmental competencies because pay scales make it impossible to hire the talent government needs.

Donahue realizes the problems the separate government world has created. But changing the government’s egalitarian wage structure is difficult.
Maybe we can take some small steps?

Kelman (steve_kelman@harvard.edu) is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

About the Author

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Connect with him on Twitter: @kelmansteve

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