Issue Briefs

Following is a section of a budget document addressing the differing results of several comparisons of federal and private sector pay.

Federal worker compensation receives a great deal of attention, particularly in comparison to that of private sector workers. Comparisons of the pay and benefits of Federal employees and private sector employees must account for factors affecting pay, such as differences in skill levels, complexity of work, scope of responsibility, size of the organization, location, experience level, and exposure to personal danger, and should account for all types of compensation, including pay and bonuses, health benefits, retirement benefits, flexibility of work schedules, job security, training opportunities, and profit sharing.


Taking into account both the pay freezes in place in 2011 through 2013 and the changes in retirement contributions that started in 2014, earnings for new Federal employees have fallen more than 10 percentage points relative to the private sector between 2009 and 2015. The President’s Pay Agent Report, which is unique in basing its findings on Federal employee job descriptions, rather than the characteristics of the employees filling the jobs, concludes that Federal jobs are severely underpaid, relative to a salary that would be needed to attract a truly qualified candidate for a similar job in the private sector.

While the average gap is currently 35 percent, it varies considerably by grade level with higher GS levels showing a 70 percent gap or more with their private sector counterparts and lower grade levels being closer to zero in some areas. Following the 3-year pay freeze, a one percent pay increase for General Schedule employees was implemented in 2014 and 2015, a 1.3 percent increase was enacted in 2016 and a 1.6 percent increase is proposed in 2017.

A series of reports released in January 2012 by the Congressional Budget Office (CBO) that accounted for some, but not all, of the factors described above, found that prior to the three-year Federal pay freeze, Federal pay, on average, was slightly higher (2.0 percent) than comparable private sector pay. CBO reported that overall Federal sector compensation (including benefits) was on average substantially higher, but noted that its findings about comparative benefits relied on far more assumptions and were less definitive than its pay findings. The CBO study also excluded forms of compensation, such as job security, that favor the Federal sector, and factors such as training opportunities and profit sharing that favor the private sector.

CBO emphasized that focusing on averages is misleading, because the Federal/private sector differentials vary dramatically by education and complexity of job.

Compensation for highly educated Federal workers (or those in more complex jobs) is lower than for comparable workers in the private sector, whereas CBO found the opposite for less educated workers. These findings suggest that across-the-board compensation increases or cuts may not be the most efficient use of Federal resources.

The CBO reports focus on workers and ask what employees with the educational backgrounds and other characteristics of Federal workers earn in the private sector.

The President’s Pay Agent Report, mentioned above, focuses on jobs and asks what the private sector would pay people with the same roles and responsibilities as Federal workers. Unlike CBO, which found that Federal pay is (on average) roughly in line with private sector pay, the Pay Agent Report found that in 2015 Federal jobs paid 35 percent less than comparable non-Federal jobs.


There are possible explanations for the discrepancy in the CBO versus the Pay Agent Report findings. First, methodological issues around the classification of Federal and private sector jobs introduce considerable uncertainty into the Pay Agent Report approach. It is significantly easier to compare college graduates in Federal versus private sector jobs than it is to determine what private sector job is most comparable to a given Federal job.

Second, the studies ask fundamentally different questions that are not necessarily in conflict. It could be the case that Federal and private sector workers with similar characteristics are paid about the same, but that jobs in the Federal sector are underpaid relative to their private sector counterparts. That would imply that, at least in some jobs, the Federal Government could have difficulty hiring and retaining workers with the same skills or managerial experience as their counterparts in equivalent private sector jobs. This could be a reason for concern, given the decline in the size of the Federal workforce relative to the population and the increasingly supervisory role it plays (e.g., supervising contractors and State and local governments).

Finally, differences in non-salary compensation such as student loan repayment, transportation subsidies, travel funds to attend professional development conferences or site visits, training and professional certifications, as well as sabbaticals and other incentives common in the private sector can also affect an employee’s choice of employer.

While the Federal Government is a leader in telework and alternative work schedules, those benefit only a subsection of employees whose positions do not require either onsite performance or 24/7 coverage.