Throughout the year, FedSmith chronicles the ins and outs of the political process that leads to the final average federal pay raise given to federal employees in January. Each year, the articles on federal pay are the most popular articles on the site.
So, in response to the market demand, we run numerous articles on the federal pay system. Here is an article on federal pay with a markedly different perspective.
Based on hundreds of comments submitted by readers in recent years, most federal employees think they are underpaid. Some contend they are vastly underpaid and contend they would make tens of thousands of dollars more if they were working for a private company.
No doubt, some of these contentions are correct. The belief is bolstered by periodic reports from the Federal Pay Council which also contends there is a pay gap and routinely concludes that federal employees are underpaid compared with the private sector.
Here are statistics from a new report with a different approach and a different conclusion. (You can download the report from the Cato Institute entitled “Federal Pay Outpaces Private-Sector Pay.)
This report contends that federal employees are significantly overpaid–perhaps by as much as 50%. Here is a quote from the report that captures its essence: “The average federal worker earned $100,178 in wages and benefits in 2004, which compared to $51,876 for the average private-sector worker, according to U.S. Bureau of Economic Analysis data.”
The figures are obviously based on total compensation of federal and private sector employees. That would include fringe benefits such as retirement and health benefits, disability benefits and holiday and vacation pay.
But, says the author of the report, it isn’t just the fringe benefits that are the reason for the huge pay differential. “Looking just at wages, federal workers earned an average $66,558, 56 percent more than the $42,635 earned by the average private worker.”
The report states that the reason for the disparity is that others (such as the Federal Pay Council) may not look at smaller American companies which often have lower compensation levels. Also, some studies do not look at the benefits package offered to federal employees and some benefits, such as retirement, are much better than those offered to many American workers. One example: 40% of American workers do not have access to a retirement plan, let alone one that is geared to go up based on the rate of inflation.
Another reason for the wage inflation of federal employees is that people are sometimes promoted into higher paid jobs regardless of performance and the jobs are redefined to fit the definition of a higher grade to enable a worker to get paid more money without any real increase in responsibility.
The report states that “[t]he federal civilian workforce has become an elite island of secure and high-paid workers, separated from the ocean of private-sector American workers who must compete in today’s dynamic economy.”
Finally, the new report says the “pay gap” between federal workers and the rest of the economy is getting wider. “Since 1990, average compensation has increased 115 percent in the government and 69 percent in the private sector, while average wages have increased 104 percent the government and 65 percent in the private sector.”
The solution to the problem? Freeze federal pay rates for several years and urging Congress to examine fringe benefits packages for possible savings. With the coming retirement boom, the Cato report suggests it provides an opportunity to turn functions over to the private sector to let market wage rates determine salaries with more efficient compensation policies.
No doubt, some readers will strongly disagree with the conclusions of the new report. But, whether a reader agrees or not, an average pay raise in 2007 of 2.2% or 2.7% may not seem so bad after all. (See “2.7% Increase for 2007 Gets Congressional Boost“)
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