December 3 2010

Baby, It's Cold Outside. But Federal Pay is Far from Frozen.

Hadley Heath

The federal government has hit a growth spurt since Obama took office, and federal workers generally make more money and have more job stability than their private sector counterparts.  This is mostly due to the inefficient nature of government, and the buffer against market forces that uniquely protects the public sector. 

So it seemed like a good move when President Obama announced earlier this week that he would freeze the pay of all federal workers.  They incrementally receive increases in pay over the time they spend in their jobs.  They also receive increases in their pay for increases in the price of living.  This part is called the COLA (Cost of Living Adjustment). 

Vinnie Vernuccio, writing for the Daily Caller, explains it well:

According to OPM [the Office of Personal Management], new employees can expect to receive a step increase every year, mid-level employees every two years, and senior employees every three years. Step increases can range from $728.00 for a GS 3 to $3,321.00 for a GS 15. Grade increases can range from $2,214.00 for a GS 1 to GS 2 to $14,931.00 for a GS 14 to GS 15. These numbers represent the ‘base' amount for federal pay. The government gives a percentage increase for different areas of the country to reflect local variations in cost of living.

For example, despite the pay freeze, a government employee living in Washington, D.C., who is classified as a GS14 Step 1 and is upgraded to a GS 15 Step 2, will receive a raise of $22,672. The next year that same federal employee - without a promotion or grade increase - can see their pay go up by $4,126 through a step increase.

Oh, and there's a caveat to the COLA freeze:

Even more importantly, the freeze would probably have happened anyway. Increases in federal pay and government assistance are calculated based on rising prices and higher costs. In October, the Social Security Administration (SSA) announced there would be no automatic COLA increase for the 58 million Americans receiving Social Security benefits.

SSA explained that the Bureau of Labor Statistics reported "no increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010." In other words, an increase was not necessary because prices over the last few years have remained static. This would also apply to federal workers. Many federal employees would still receive step increases but not a COLA.

And then Vernuccio hits the nail on the head: A real pay freeze would be good, but eliminating unnecessary jobs and bringing federal pay down to market levels would be better.

President Obama said the freeze "would save $2 billion over the rest of this fiscal year and $28 billion in cumulative savings over the next five years." Some economists claim that barely scratches the surface of the real savings that could be achieved if federal pay were brought into line with private sector wages.

Federal salaries have ballooned over the last few years and are far greater than salaries in the private sector. USA Today reports that, "the number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office"

As James Sherk of the Heritage Foundation notes, "Federal employees earn between 30 percent and 40 percent more than equivalently skilled private-sector workers...[M]ost federal compensation is not a contractual obligation and Congress can reduce it in those positions which are overcompensated. If Congress reduced this federal pay to market rates this would save taxpayers about $47 billion a year."

Chris Edwards of the Cato Institute also discusses the inequity between federal government workers and those in the private sector. In a June study, he found that government sector workers earned an average annual wage of $81,258 in 2009, while private sector workers only earned an average of $50,464. He also notes that government salaries rose on average by 58 percent in the last decade while private sector salaries rose by only 30 percent.

Read the full article here.

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