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

Published online by Cambridge University Press:  03 March 2009

Lee A. Craig
Lee A. Craig
Affiliation:
Associate Professor, Department ot Economics, North Carolina State University, Raleigh, NC 27695–7506, and Faculty Research Fellow at the National Bureau of Economic Research.
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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.

Type
Papers Presented at the Forty-Fourth Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 55 , Issue 2 , June 1995 , pp. 304 - 320
Copyright
Copyright © The Economic History Association 1995

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