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The Political Economy of Public-Private Compensation Differentials: The Case of Federal Pensions

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  • Craig, Lee A.

Abstract

Numerous empirical studies indicate that, as a result of rent-seeking behavior, public-sector workers are overcompensated relative to their private-sector counterparts, with pensions representing part of the difference. I present a history of the Federal Employees Retirement Act of 1920 and show that rent seeking by federal workers cannot explain several features of the act. Instead, I argue that the act represented an optimal incentive contract between Congress and civil service employees in which civil servants accepted mandatory retirement and a compensating wage differential in exchange for the federal pension plan.

Suggested Citation

  • Craig, Lee A., 1995. "The Political Economy of Public-Private Compensation Differentials: The Case of Federal Pensions," The Journal of Economic History, Cambridge University Press, vol. 55(2), pages 304-320, June.
    • Handle: RePEc:cup:jechis:v:55:y:1995:i:02:p:304-320_04
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    Cited by:

    1. Nino Abashidze & Robert L. Clark & Lee A. Craig, 2023. "Quantifying and explaining the decline in public schoolteacher retirement benefits," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 62(4), pages 335-358, October.
    2. Robert L. Clark & Lee A. Craig & John Sabelhaus, 2011. "State and Local Retirement Plans in the United States," Books, Edward Elgar Publishing, number 13685.
    3. Robert L. Clark & Melinda Sandler Morrill, 2010. "Retiree Health Plans in the Public Sector," Books, Edward Elgar Publishing, number 13688.
    4. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
    5. Robert L. Clark & Lee A. Craig & Jack W. Wilson, "undated". "The Life and Times of a Public-Sector Pension Plan Before Social Security: The US Navy Pension Plan in the Nineteenth Century," Pension Research Council Working Papers 99-10, Wharton School Pension Research Council, University of Pennsylvania.

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