EconLog | Bryan Caplan | Public vs. Private Sector Compensation: A Case of Curious ControversyOn the one hand, yes. On the other, no.
Bewerunge and Rosen's working paper on public- versus private-sector compensation begins with a discussion of recent controversy:
... Exploring [compensation parity] is challenging for two reasons. First, the human capital of public and private sector workers may differ. If, for example, public sector workers have more education than private sector workers, then it is neither surprising nor objectionable that they earn higher wages. This is precisely the argument made by former White House budget director Peter Orszag
The yes is obvious, so why the no? Because adjusting for education is a measure of inputs, and what we're really concerned with is outputs.
What if every hammer the government owned cost $1000, when private sector hammers cost $50? That's outrageous, right? The Government is drastically overpaying for hammers! Taxpayers are being cheated!
Then along comes the White House to explain that no, no, no, it's perfectly reasonable for federal hammers to cost more because they're made of mithril. Mithril is more expensive than steel, so the gov't is totally justified in paying more. Once you do the proper regressions and clean the data up just so... presto bango! the government is paying a reasonable price for its hammers.
But do they need a mithril hammer? Is the mithril hammer doing a better job of driving nails? Are they getting things built any faster with the mithril hammers? Are their buildings more robust? Are they hammering adamantine nails into cavorite boards? Or are they just banging things with top-of-the-line, A1 grade, gold star, best-in-class, Hephaestus-approved, super-premium, special reserve edition Mjölnir-class mallets for shits and giggles?
To a first approximation you should definitely account for things like education when doing these comparisons. But keep in mind that's just an approximation. It's assuming an implicit conclusion: that the government needs all the highly credentialed people it hires.
For example, the number of K-12 teachers with advanced degrees has ballooned to 48%. Are we getting any better education with all those MAs we're paying for? When even the Center for American Progress says no I think the answer is pretty clear. (HuffPo and NPR are also in agreement, so this is clearly no radical capitalist thing.) Statistically "correcting" for the education level of half of the teachers in the country seems reasonable until you stop to ask whether those extra years of schooling are actually providing any extra benefit in addition to their cost.
PS I expect everyone in this debate who's putting such high stock in accounting for human capital to do the same when the topic of conversation turns to, for example, pay disparities by gender & race, or comparisons between CEO and average employee compensation.
PPS It's important to note the actual thesis of Caplan's post: despite Orszag's assertive claims, the literature completely disagrees. This just goes to show that if you speak in a confident enough voice and start your sentences with some version of "Studies have shown..." you can get away with making almost any claim.
Of course, it helps immensely to have a sufficiently sycophantic or credulous audience.