Federal Pay, Inflation and Politics

By on November 16, 2005 in Current Events with 0 Comments

With concerns over possible changes to the federal employee retirement system (See "High Three" to "High Five"?), and active federal employees wondering if they will get a raise in 2006 while retirees will get a raise of 4.1% (See Just When You Thought It Was Safe!"), here are some statistics that may make some readers feel better about their federal job.

Discussions about federal pay usually involve politics. Federal employee salary rates are effectively determined through the political process.

In theory, the pay of federal employees is determined by comparing federal pay to comparable positions in the private sector. In reality, most people who are not federal employees (including presidents from both political parties) don’t seem to think these figures have much of a relationship with the real world. Inevitably, the recommendations of the "pay gap" determined by the federal salary council are ignored. And, instead of getting a raise in the double-digits, the annual federal pay raise usually ends up in the range of 2% – 4%–although the final figure may not be known until after the raise becomes effective.

The fact of the matter is that determining pay in a bureaucracy is harder because a lot of jobs are not comparable to private sector jobs. Other economic and political considerations come into play. For example, most Americans work for small companies which pay less money but may have more potential for career growth. Larger companies that have been around for generations and have strong unions have traditional pension systems with large salaries but some of these are being driven out of business by competition and their inablity to compete with companies that pay less and have less generous benefits.

In addition, federal employees have locality pay for some areas, within-grade increases are virtually automatic in many organizations and in some agencies a federal employee will rise to the top of a pay grade within a relatively short time with little competition.

It is not surprising that coming up with a pay scale for federal employees is a challenge. Moreover, federal employee unions like to shout out that federal employees are seriously underpaid and frequently tout statistics to show how much the typical federal employee would make if he or she were smart enough or lucky enough to leave the low-paying federal job and move into private industry. No doubt, that is a great organizing technique.

But, as the statistics below will show, anyone thinking of leaving the employment of Uncle Sam to jump into the private sector should look closely. In some occupations, you will make more working for a large private company. In others, you will not come close to the salary and benefits (and relative job security) of a federal job.

Here is the big picture. One way to cut through some of the political chaff is to compare how the average federal employee pay has compared to that of private sector employees in recent years.

FedSmith.com recently ran an article that indicated federal employee pay for the past five years has increased more than that of private sector employees. Several readers commented along the lines of "If you go back more than five years, you will see that federal employee salaries are still way below that of the private sector because we made so much less prior to 2001."

Here are several statistics that may make you feel better about your salary:

  • Average hourly wages for American workers in July 2004: $18.09
  • Average hourly wage for all federal employees in March 2004: $29.00
  • The figures for federal employees over a longer time period look even better.

    For example, from 1997 – 2003, wages went up for most American workers by 19.9%. That actually beat inflation as the consumer price index during that time went up 17.7%.

    Here is the comparative figure that will surprise some readers though.

    • From 1997 – 2003, the average hourly wage for federal employees increased about 38%.

    The total figures you see include what federal employees made as an average in 1997 and then comparable figures for 2004. The intervening years included the yearly pay increases as well as within-grade increases, promotions, etc. received by federal employees.

    The figures may be the result of "grade creep" in the federal bureaucracy, increases in locality pay, or other reasons.

    The statistics for the federal government salaries are compiled by the Office of Personnel Management. The figures for the private sector are compiled by the Department of Labor and were reported in the Wall Street Journal on September 13, 2005.

    But the experience of the federal government employee is not unique among government workers. The Wall Street Journal, in outlining the results compiled by the Department of Labor, has spotted a trend. It says that the gap between government workers and their private sector counterparts is large and that the trend is increasing. In other words, government workers at all levels are now making more than the average private sector worker.

    That may be because unions are much stronger in the public sector while union strength is declining in the private sector. Companies with strong unions and that pay generous benefits and salaries may go out of business. But a government doesn’t face the prospect of going out of business by keeping wages and benefits higher.

    For those who are curious, you can see the report of the Federal Salary Council which contends that federal pay scales are 13.6% less than pay of private sector employees in 2006. Part of the reason for the differential is certainly due to the process used by the council of calculating the pay gap by "excluding existing locality payments because locality pay is paid on top of the base General Schedule rates."

    © 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

    About the Author

    Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters onĀ federal human resources.