Pay Raises, Inflation and the Federal Workforce

By on February 8, 2015 in Current Events, Pay & Benefits with 238 Comments

President Obama wants a 1.3 percent pay raise in 2016 for federal employees and military personnel. Many current employees are not happy with this proposed raise although it is larger than the 1 percent raise than he has requested (and ultimately became a reality in the previous two years).

President Obama did recommend a raise of 0.5 percent for 2013. Congress did not go along with the 0.5 percent raise and the president accepted the implementation of the pay freeze for the third year.

For some federal employees, their pay was frozen for three years.  Others received raises due to within grade increases or by getting promoted to a higher pay grade. The Office of Personnel Management (OPM) noted that despite the pay freeze, the average federal salary still went up by 1.4 percent in 2012. (See 2013 Salary Data: Federal Salaries Increase Despite Pay Freeze)

Several readers have opined that their raises under the current administration are the lowest they have seen. While we do not know how long those with this opinion have worked for the federal government, their view has a factual basis. During the Obama administration, the average annual pay increase has been lower than any time since at least 1970—even assuming that Congress approves the 1.3 percent pay raise for next year.

The federal employee unions have predictably issued press releases asking for a bigger raise (3.8 percent) in order to make up for pay freezes that took place from 2011 through 2013. Their argument is that the pay freeze has hindered recruiting, retention and worker morale.

Federal-workforce pay raises have varied in size through the years, ranging from 10.9 percent under President Nixon in 1972 to 1 percent in 2015 (and a pay freeze for three years from 2011-2013). In fact, of the highest average federal pay raises (over 6 percent per year on average) were during the Nixon administration from 1969-1974. Federal pay raises were actually higher than that in 1945 and 1946 but circumstances were considerably different at the end of World War II.

One reader noted in commenting on a recent article on federal pay that “the salary increases are only slightly trailing inflation over the last decade.” That data may make some federal employees feel better about their relatively small raises of the past few years. The actual basis for a pay raise for the current federal workforce is not directly related to the inflation rate but there is often at least an indirect correlation.

Any annual pay raise for federal employees is a political decision based, in part, on pay comparability with the private sector although no satisfactory method of determining the differential has been reached. It is an understatement to note that there is significant disagreement about whether the amount of pay received by federal workers compared to the private sector is too high or too low. (See Federal Pay Raises Through the Years)

Here is a table showing the annual federal pay increase and the rate of inflation (based on the average for each year from the U.S. inflation calculator) during a time when there were significant pay raises under President Nixon and the same data during the administrations of Presidents Bush and Obama. As you can see from these data, it is not uncommon for the federal pay raise to exceed the rate of inflation although that has not usually been the case under the Obama administration.

Federal Raise Increase vs Inflation

Year Raise Inflation
1969 9.1% 5.5%
1970 0 5.7%
1971 6% 4.4%
1972 10.9% 3.2%
1973 4.8% 6.2%
2001 3.7% 2.8%
2002 4.6% 1.6%
2003 4.1% 2.3%
2004 4.1% 2.7%
2005 3.5% 3.4%
2006 3.1% 3.2%
2007 2.2% 2.8%
2008 3.5% 3.8%
2009 3.9% 0.4%
2010 2% 1.6%
2011 0% 3.2%
2012 0% 2.1%
2013 0% 1.5%
2014 1% 1.6%
Average 3.50% 3.05%

The average annual salary increase for the years in the table is 3.50%. The average annual inflation rate for the years in the table is 3.05%.

For those with an academic interest in a longer time frame, over a period of 50 years, from 1964 – 2014, the average federal salary increase has been 3.9%. The average yearly inflation rate has been 4.13%.

For those who have inquired about any increase in their federal retirement checks in 2016, that decision is determined by a pre-determined formula that is automatically applied in January. The cost of living allowance (COLA) increase for 2016, if any, will not be known until October 2015. (See Federal Pay Raises Through the Years for a comparison of the federal salary increase and the annual COLA increase.)

© 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 on federal human resources.

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