Average (Total) Federal Compensation in 2007: $116,450

It seems no one is happy with the federal pay system. Many employees and federal unions argue that federal employees are significantly underpaid. But not everyone agrees. The average federal employee in 2007 received a pay and benefits package of $116,450–more than twice as much as the average private sector employee.

How much should federal employees be paid each year? Are federal employees significantly underpaid for the work that they do or are taxpayers getting stuck with an unnecessarily large bill for a pay and benefits package that is overly generous?

In the private sector, salaries are determined by the company deciding how much pay is necessary to get the quality of skills and experience that is necessary to keep the company running and profitable. If employees are not paid as much as they can make with other comparable companies, they leave. In effect, the market determines how much an employee is worth. As pointed out in the quote later in this article, federal employees generally do not leave their jobs until retirement for a variety of reasons, which probably include significant job security and the salary and benefits package offered by Uncle Sam.

In the federal government, the amount of pay is determined by a combination of committees, policy-makers, and the web of political intrigue that surrounds Congress and the White House. The result is that no one seems to be satisfied. Federal employees unions and many federal employees argue that the average federal worker is significantly underpaid. In fact, the Washington Post ran a column today in which the author writes that federal employees in the Washington, DC metropolitan area are underpaid by approximately 31%. As the median federal salary in Washington is now about $91,000, a raise of 31% would put the median federal wage in Washington at about $118,000–give or take a couple of thousand and not counting anything for the federal benefits package.

While we see comments on this site from a number of readers referencing their low pay compared to what the reader thinks he or she should be taking home each year, there is no doubt that the average federal employee makes a lot more money than the average private sector employee. Articles that dispute that strongly held belief usually generate heated comments as some do not like to read articles contrary to their economic self-interest.

The articles are still widely read, even if hotly disputed by some. You can look in your local papers for an article on this subject of federal wages in the next several weeks. Here is why: Chris Edwards of the Cato Institute writes in a new column that the average federal employee’s compensation package in 2007 was $116,450. That is more than double the $57,615 private sector average. That always gets the attention of the people paying the taxes to support the federal wage structure.

Moreover, the disparity is growing rapidly. In 2000, the average federal worker had an advantage of 68%. Today, the advantage is up to 102%–not counting the 2008 federal pay raise. Edwards writes that: “Between 2000 and 2007, average federal compensation increased at an annual average rate of 6.3 percent, which compares to the private sector increase of 3.5 percent. During the 1990s, average federal worker compensation increased at an average rate of 5.1 percent.” (See these charts detailing the trends of average wages and compensation)

Whenever an article is written about the average federal pay, a number of readers comment that the pay for federal employees should be much higher because federal employees are better educated, have jobs that require more skill, and that the more menial federal jobs are contracted which accounts for the disparity.

There is certainly some truth to that statement but, perhaps, not as much truth as some like to believe.

The Wall Street Journal has noticed the disparity between private sector and federal sector pay and wrote, with regard to the argument that federal jobs require higher pay for work that requires greater skill: “It’s true that many federal employees are in white collar occupations that often command high pay, but studies find that public sector workers enjoy a 20-30% pay bonus above comparably skilled private workers. And this differential does not account for one of the biggest benefits of a government job: civil service rules giving virtual lifetime job security. Airline mechanics, auto workers and software designers must all worry about business-cycle downturns or changes in technology or outsourcing, but Uncle Sam’s 1.8 million civilian employees live in a recession-proof bubble.”

As noted above, there are arguments advanced each year that the federal workforce is underpaid by a significant amount. Federal employee unions have done a good job of lobbying and providing financial support for Congressmen who often represent a large number of federal employees and who are sympathetic to this argument. The Journal comments: “Public-employee unions continue to say their members are underpaid, believe it or not. But one market test is the voluntary quit rate of these workers, and data for recent years show that rate for federal employees is only one-fourth that in private sector occupations. High-paying federal jobs are so coveted that they are now like rent-controlled apartments in Manhattan: Once you’ve got one, you hold on to it for life.”

So are federal employees making too much or too little? No doubt, those with an economic interest on both sides of the argument will continue to volley back and forth. In the meantime, it is likely that the disparity between the federal wage structure and the private sector will continue to mushroom. The latest statistics on the total wage compensation package noted above do not include the 2008 federal pay raise and, based on current events, the average salary increase for federal employees will probably be 3.9% in 2009. As we are arguably in a recession, and the economic climate will result in a much lower salary increase for the average private sector worker, the 102% disparity is likely to zoom upward when results from 2008 and 2009 are calculated.

The biggest danger facing the federal workforce on this issue is probably political. Those of us who work in the federal community often read the articles and arguments advancing the case of higher federal wages. Most of these are never seen by most Americans and, to someone making half of the average federal employee, the arguments are likely to be accepted.

At some point, it is unlikely that taxpayers will be willing to pay the federal salaries that are going up so much faster than private sector wages. A democracy in wihch those paying the bils conclude that government workers have too much money, too many benefits and too much power and with pay that is based primarily based on seniority rather than performance leads to political instabiity and significant change with unpredictable consequences.

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. Follow Ralph on Twitter: @RalphSmith47