In our work on public sector pay, Jason Richwine and I have attempted to put a dollar value on the greater job security enjoyed by government employees, which acts as a free insurance policy against losing your job. Estimating the value of job security from the data is tough, however, for technical reasons outlined in our working paper on federal pay. Instead, we use an economic model, calibrated with a variety of data, to arrive at an estimate.
Our baseline result was that job security for federal government employees was equivalent to a 1.5 percent to 3 percent increase in pay. (There is some recent academic work cited in our paper showing that this may be an underestimate—a German survey found that individuals stated they would accept a more than 10 percent pay cut to receive public sector levels of job security.) Importantly, though, our baseline result assumes that federal employees who lost their jobs would, after a period of job-searching, find new employment at similar pay. However, our working paper also showed that federal workers receive a significant salary and benefits premium over similar private sector employees. This is where job security becomes particularly valuable, because it protects not only against lost income during unemployment but also against being forced into a lower paying job afterward. When this factor is accounted for, the value of job security rises to around 17 percent of pay.
As noted above, there isn’t much data to confirm or deny these results. One piece of evidence, which we cited in our paper, is that congressional employees—who do not enjoy the job protections of other federal workers—receive higher pensions in explicit compensation for their lesser job security.
But thanks to my AEI colleague Mark Perry, we have another interesting data point. In a recent post, Mark highlights the cost of private supplemental unemployment insurance for workers in different job categories. This unemployment insurance, offered by a company called Income Assure, will top up any government payments you receive so that your total income in unemployment equals half your working income. These payments last for 24 weeks, about as long as government unemployment insurance.
Significantly, supplemental unemployment insurance costs a lot more for private sector workers than it does for individuals working in “public administration,” which denotes certain classes of government employees. For instance, individuals working in “professional and business services” pay premiums 2.6 times higher than public employees for the same level of protection.
Based on these different prices, it is possible to back out the implicit value of public sector job security. I compared salaries between public and private sector workers’ net of supplemental unemployment insurance premiums sufficient to protect against all loss of income during unemployment. The difference in salaries indicates the job security premium paid in the public sector. The answer I found was around 2.4 percent, which was a right in line with our baseline results. Given that total compensation for a typical federal employee is well over $100,000, even this baseline 2.4 percent job security premium is worth several thousand dollars. When you add that it protects a job paying a wage and benefits premium, the value of public sector job security is far higher.
It would be nice to have more data, such as whether supplemental unemployment insurance premiums differ for federal employees versus those in state or local governments, and I will look into this more closely. But for now, these data confirm what we already know: better job security in public sector employment has a real value.