80% Differential in Federal and Private Sector Compensation

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By on September 24, 2017 in Pay & Benefits with 0 Comments

ropical island in the shape of dollar sign

The debate on compensation for federal employees goes on.

The latest report on this topic will not be well received by federal employees as it argues federal workers are substantially overpaid when total compensation is considered.

The Federal Salary Council says that federal employees are underpaid by about 35%. This organization does not take into account benefits, only salaries, and their method of calculating these results is obscure and shows different results from most other studies.

Nevertheless, the Salary Council conclusions and recommendations do have an impact on federal salary levels.  The President’s Pay Agent often adopts at least some of the Council’s recommendations for increasing locality pay scales for federal employees throughout the United States and for expanding the number and geographic areas covered by locality pay.

In its latest report, the Salary Council concluded: “Taking into account existing locality pay rates averaging 20.16 percent, the overall remaining pay disparity is 34.07 percent.”

In April 2017, the Congressional Budget Office released a report that found federal employees earn 17 percent more than comparable private sector employees in their total compensation— with wide variances depending on the education level of employees. (See Dueling Statistics on Federal Employee Pay)

A new report by Chris Edwards of the Cato Institute uses data from the Bureau of Economic Analysis (BEA) on pay and benefits to analyze the federal employee pay situation. The data from Cato does not include uniformed military personnel, only civilian federal employees.

Trends in Federal Pay

Cato has been analyzing federal employee pay and benefits for several decades. Their studies show that in 1990, the average federal employee total compensation package was 39 percent higher than average private compensation. By 2000 the federal pay advantage was up to 50 percent. By 2016 it was 80 percent according to the BEA data.

In 2016, federal civilian workers had an average salary of $88,809, according the BEA data.

In comparison, the average salaries for the 114 million private-sector workers in the United States was $59,458.

When federal employees’ benefits, including health care and pensions are included, the federal employee compensation advantage gets much larger than in the private sector, according to the BEA data.

According to the Cato report, “In 2016 total federal compensation averaged $127,259 or 80 percent more than the private-sector average of $70,764….” (See also Federal Pay Tops Most Industries)

Reasons for Federal Employee Pay Increases

The increase in federal compensation comes from several sources according to the Cato study.

  • Legislated increases in general pay
  • Increases in locality pay
  • Expansions in benefits
  • Growth in the number of high-paid jobs as bureaucracies become more top-heavy
  • Routine adjustments that move federal workers into higher salary brackets regardless of performance, and by federal jobs that are redefined upward into higher pay ranges.

Opening Up a Can of “Whoop-Ass” on Recalcitrant Legislators

Politics also plays a role in determining the federal employee compensation package.  Federal employee unions routinely use their money and influence during elections to oppose Congressional representatives who do not support federal employee compensation increases.

The Cato article highlights comments from AFGE’s National President who “aggressively denounced lawmakers who stood in their way as ‘fools,’ and said that the union would ‘open up the biggest can of whoop ass on anyone’ who opposed its demands on pay and other issues.” (See How to Attract Federal Professionals to a Union: Open a Can of “Whoop-Ass”)

Federal Employees are Not “Hamburger Flippers”

One of the most common comments from readers on articles concerning the total compensation package for federal employees is that “We are not hamburger flippers.” In other words, the private sector average includes many lower paying jobs that do not exist in large numbers in the federal sector. See, for example, the comment below posted on one of FedSmith’s past articles.

Presumably because the comment is cited so often, author Chris Edwards addressed this in the Cato summary of federal employee compensation. 

Some people argue that the government has a unique high-end workforce that deserves to be paid handsomely. But the federal workforce has always had a heavy contingent of skilled professionals, such as lawyers. So that factor does not seem to explain why federal compensation has grown faster than private-sector compensation in recent decades. (A 39 percent differential in 1990 to an 80 percent differential in 2016.)

And, as noted by the CBO report cited above and noted in the Cato summary as a rebuttal to this comment,  among less-educated workers, the federal government pays better. But, for highly educated workers, the private sector pays better.

Overall Conclusion of Cato Study

The federal government has become an elite island of secure and high-paid employment, separated from the ocean of average Americans competing in the economy.

© 2019 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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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

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