You are shocked that people think government jobs are different than other jobs? That seems kinda weird.
The fact that you think this about "government jobs" being different, and not about how when it comes to the labor market the government is an actor no different than its private sector counterparts all competing for the same resource, is kind of my point.
I largely agree with parasauropophus here (sidestepping the issue you raised about civil servants).
The government is constrained by the labor market in that it can't hire top-tier employees without offering top-tier compensation. It must compete with private employers for labor, and it must offer something reasonable in comparison to what private employers are offering for any given level of competence.
But the government is unlike private employers because private employers are subject to multiple countervailing forces that generally set wages based on economic laws of physics rather than by fiat. A private employer will generally (in a hypothetical market with perfect competition and perfect information) pay an employee exactly what he's worth -- i.e., exactly what he adds to the bottom line of the company. If a given employer offers less than that, his competition will outbid him and he won't be able to attract employees. If a given employer offers more than that, his competition will undercut him on the price of the finished goods or services, and he won't be able to attract customers. In the real world, things aren't that precise, but the same general idea holds, albeit in messier fashion.
When the government is the employer, it's not subject to that second kind of competition. Wages aren't set within a narrow range by overall market forces (both the labor market and the market for its good and services). Rather, they are set by fiat. There is no competitive market for federal legislation such that if Congress doesn't hire good enough legislators, people will move to France. I mean, that's possible in extreme cases, but the transaction costs of moving largely insulate Congress from that kind of competitive pressure.
A private company will go out of business if it underpays (and can't attract employees) or overpays (and can't attract customers).
Congress won't go out of business in either case. If it underpays, it will produce a crappy product that customers still generally won't switch away from because the transaction costs of moving are prohibitive. And if it overpays, there's really no obvious penalty in the marketplace. In theory, overpaying for Senators is a waste because it will cause people to become Senators even if they'd be worth more to society as entrepreneurs or CEOs. In practice, there's no real danger of that -- we could definitely use better House Members and Senators even if we had to pay ten times as much for them as we currently do. Good ones would be worth that much (really, much more).
Unfortunately, that highlights another difference between private employment and public office. In private employment situations, the people doing the hiring and firing typically know what they're doing and are paying attention. There are principal-agent problems, to be sure, but board members ultimately respond to the shareholders, and the stock market is hard to bamboozle. Voters, by contrast, are (rationally) ignorant dupes. Give a private employer more money to throw at a position, and he'll probably make better hires at that position. Throw more money at members of Congress, and the public will still just vote for demagogic cranks all the same. That's one argument against raising Congressional pay.