Issue Briefs

Following is the section from the Obama administration’s recent budget proposal discussing its proposed federal pay raise and comparisons of federal versus private sector pay.

After more than a decade when the percentage increase in annual Federal pay raises did not keep pace with the percentage increase in private sector pay raises, Congress passed the Federal Employees Pay Comparability Act of 1990 (FEPCA) pegging Federal pay raises, as a default, to changes in the 15-month-lagged Employment Cost Index (ECI) series of wage and salaries for private industry workers, and to locality pay adjustments. The ECI measures private sector pay, holding constant industry and occupation composition. The law gives the President the authority to propose alternative pay adjustments for both base and locality pay. Presidents have regularly proposed alternative pay plans.

In late 2010, as one of several steps the Administration took to put the Nation on a sustainable fiscal path, the President proposed and Congress enacted a two-year freeze on across-the-board pay adjustments for civilian Federal employees. This has created structural savings in the Budget of $60 billion over 10 years. The President also issued a memorandum directing agencies to freeze pay schedules and forgo general pay increases for civilian Federal employees in administratively determined pay systems.

For 2013, the President is proposing a 0.5 percent pay increase. While modest, the Administration’s decision to propose an increase in pay for civilian Federal employees reflects the understanding that while the continuation of a pay freeze was unsustainable, the tight fiscal environment required a responsible approach that enables the investment needed to spur jobs and economic growth for decades to come. This pay increase proposal permits savings of approximately $28 billion over 10 years and $2 billion in 2013 within the BCA caps, reallocated to priorities and services the American people depend on and that would not otherwise have been available under the spending caps. Proposing a pay increase below the level of the private sector (or ECI) was not taken lightly, given the two-year pay freeze in 2011 and 2012 — but recognizes the real constraints of the current budget situation.

The 2013 Budget also includes a deficit reduction proposal that would dedicate an additional 1.2 percent of employee salary (phased-in at 0.4 percent over three years) for contri butions toward retirement benefits. This change in employee contribution levels would not change the amount of each Federal employee’s pension benefit, but would result in $21 billion over 10 years in mandatory savings.

Composition of the Federal Workforce and Factors Affecting Federal Pay Federal worker compensation receives a great deal of attention, in particular, in comparison to that of private sector workers. Comparisons of the pay of Federal employees and private sector employees, for example, should account for factors affecting pay, such as differences in skill levels, complexity of work, scope of responsibility, size of organization, location, experience level, and exposure to personal danger. Some of the factors affecting pay are discussed below.

Type of occupation. The last half century has seen significant shifts in the composition of the Federal workforce, with related effects on pay. Fifty years ago, most white-collar Federal employees performed clerical tasks, such as posting Census figures in ledgers and retrieving taxpayer records from file rooms. Today their jobs are vastly different, requiring advanced skills to serve a knowledge-based economy. Professionals such as doctors, engineers, scientists, statisticians, and lawyers now make up a large portion of the Federal workforce. Between 1981 and 2011, the proportion of the Federal workforce in clerical occupations fell from 19.4 percent to 5.1 percent of the workforce, and the proportion of blue-collar workers fell from 22.0 percent to 9.7 percent.

Today, a large number of Federal employees must manage highly sensitive tasks that require great skill, experience, and judgment. Federal employees increasingly need sophisticated management and negotiation skills to affect change, not just across the Federal Government, but also with other levels of government, not-for-profit providers, and for-profit contractors. Federal and private sector workers do very different types of work. More than half (55 percent) of Federal workers work in the nine highest-paying occupation groups as judges, engineers, scientists, nuclear plant inspectors, etc., compared to about a third (33 percent) of private sector workers in those same nine highest paying occupation groups. In contrast, 46 percent of private sector workers work in the seven lowest-paying occupation groups as cooks, janitors, service workers, clerks, laborers, manufacturing workers, etc. About 27 percent of Federal workers work in those seven lowest-paying occupation groups.

Education level. The size and complexity of much Federal work necessitates a highly educated workforce whether that work is analyzing security and financial risks, forecasting weather, planning bridges to withstand extreme weather events, conducting research to advance human health and energy efficiency, or advancing science to fuel future economic growth. About 21 percent of Federal workers have a master’s degree, professional degree, or doctorate versus only 9 percent in the private sector. Only one-in-five Federal employees has not attended college, whereas 41 percent of workers in the private sector have not attended college.

Size of organization and responsibilities. Another important difference between Federal workers and private sector workers is the average size of the organizations in which they work. Federal agencies are large and often face challenges of enormous scale, such as distributing benefit payments to over 60 million Social Security and Supplemental Security Income beneficiaries each year, providing medical care to 8.8 million of the Nation’s veterans, and managing defense contracts costing billions of dollars. Workers from large firms (those with 1,000 or more employees) are paid about 14 percent more than workers from small firms (those with fewer than 100 employees), even after accounting for occupational type, level of education, and other characteristics.

Demographic characteristics. Federal workers tend to have demographic characteristics associated with higher pay in the private sector. They are more experienced, older and live in higher cost metropolitan areas.

For example, 22 percent of Federal workers are 55 or older — up from 15 percent 10 years ago and significantly more than the 18 percent in the private sector.