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  • Left Still In Denial About Federal Worker Pay

    Lawrence Mishel, president of the Economic Policy Institute (EPI), does not like President Obama’s call for a two-year pay freeze.  He writes:

    [The freeze]…will only enlarge the degree to which federal pay lags that of the private sector (a gap of 22%, according to the federal pay agent’s report. See Table 4.) ….and in the process [it] reinforces conservative myths, in this case the myth that federal workers are overpaid.

    This statement is not merely false, but also intellectually inconsistent.  First the “false” part: Labor economists  have been documenting a federal pay premium for decades.  After controlling for a large set of worker characteristics—age, education, experience, race, gender, etc.—federal workers earn more in wages than comparable private sector workers.  This is not a partisan claim, much less a “myth”—it’s a factual summary of the academic literature.

    To support his claim that federal workers are actually underpaid, Mishel cites the President’s Pay Agent report.  As we have stated many times, the Pay Agent uses an entirely different methodology, one that attempts to compare job duties rather than individual skills and qualifications, which is wholly inadequate.  This is why labor economists overwhelmingly prefer the human capital model, which compares individual workers with the same characteristics.

    Mishel’s statement is inconsistent with his own organization’s report on state and local pay.  To show that state and local workers (not federal workers) make slightly less in wages than comparable private sector workers, the EPI report uses the very same human capital model that shows federal workers are overpaid.  In fact, it explicitly rejects job-based comparisons of the kind the Pay Agent uses.

    In other words, EPI embraces the human capital model when it shows one set of public workers (state and local) is underpaid, but it rejects the same model when it shows another set (federal) is overpaid.  How about some consistency?

    (On a side note, it is critical to distinguish between federal workers on the one hand, and state and local workers on the other.  Their situations are quite different, and we must analyze them separately.  For a discussion of how EPI and others undervalue state and local pension and health benefits, see my American Spectator article coauthored with AEI’s Andrew Biggs.)

    Posted in Economics [slideshow_deploy]

    9 Responses to Left Still In Denial About Federal Worker Pay

    1. Corey Mann Leavenwor says:

      If you are upset about no pay raise quit that job and find another one.

    2. George Colgrove, VA says:

      I don’t know if it is denial, but maybe obfuscation. I hate this pinning one group against another, but things have gotten out of hand. Every time this topic comes to front, we get the same antidotal stories of a poor federal worker who ALWAYS:

      (1) earns anywhere between of $20,000 to $30,000 less than their previous private sector job or they had to take a pay cut of $15/hour to take a fed job.

      (2) either a wife of a man who works for the DoD or a man or a woman who works for the HHS.

      (3) compares their plight to the extreme income of a corporate CEO.

      (4) has horrible benefits.

      (5) The numbers are skewed because of the higher paid upper management.

      (6) It is not the fact federal income has gone up it is the fact that the private sector has not kept up.

      (7) They pay taxes too.

      The truth is:

      (1) First of all these feds talk in terms of cash earnings – not earnings plus benefits. They will say “I earn nowhere near $123K” as if we are saying they earn that in cash. I bet most of these people are earning pretty close to the average cash take of $81K.

      But that being said, if the $30K +/- pay reduction (from the private sector) for taking a federal job were true, it is no wonder the federal government is in the economic woes it is in. The federal workforce cannot even make wise decisions with their personal finances. $30K +/- reduction in pay is not worth marginal job security. However, looked at in another way, if they can sacrifice $30K of earnings for flexibility and security, what were they earning before, and what are they earning now? The average private sector employee earns $51 in cash. Are they saying that they are getting paid $20K to $30K now? Who would down grade their income to that low level! If they are earning $81K+/-, why did these two needs make them want to lose a $100K+ job?

      (2) I think those who obfuscate hide behind the two largest departments that has high perceived importance the DoD and the HHS. It is a hidden reminder that “if they did not have their job” there would be no DoD or Social Security. I am offended by this. First, the Military (i.e. soldiers) have my fullest support. I feel DoD federal CIV workers (who are no different than any other federal worker in any other federal department) feel they deserve the same respect the soldiers get. I personally see the 400,000 civilian workers in the DoD as $50 billion drain on the defense budget. With so much waste and bureaucracy that makes fighting a war dangerous and arduous, there is a big need to reduce staff and salaries. One war ship could be paid for paid for by letting just 8,000 DoD CIV employee go – or by reducing the DoD pay by just 2%! Such small simple cuts and tremendous gains without increasing the budget.

      The same inefficiencies also exist in the HHS. One billion cut (just 8,000 federal employees) from their department could go to fund 38,000 families at the poverty level.

      (3) Comparing to CEO pay is absurd. No pay comparison study includes CEO pay in the averages. But that being said, the 2.7 million federal workers consumes over $332 billion of the taxpayer’s hard earned income. Assuming a typical CEO earns $50 million a year, it would take 6,600 CEO’s to be compensated at that huge amount. In 2009, there were only 74 CEO's at that level, which incidentally was down from 131 in 2008. A CEO is a class unto themselves and no one should be comparing their jobs to that of a CEO – including the president.

      (4) As for benefits, a federal employee pays roughly $1 for every $6 the taxpayer is forced to pay for their (the fed) personal healthcare costs. They get a 401K like plan where the federal government can pay up to 100% and in places even 200% of matching funds. On top of that they get a pension that we taxpayers pay into somewhere around 10% of the salary even though the employee contribution is not even 1% of their pay. In short a minimum benefits package can amount to over $20K of our personal money – each year, with an average take of over $40K a year. Upwards of over 4 times what the private sector receives. And the healthcare typically includes everything under the sun.

      (5) 66,000 federal employees earn over $150,000, the average is $123,000. If you remove the 66K federal employees who are paid over $150,000, the average federal employee income only drops to $122,000. This means that a massive number of federal workers have to be between $150K to $94K to maintain the $122K average, considering the number of people earning from $94 down to $50 (likely the minimum federal compensation package). I remind you that this also includes the lucrative federal benefit package. This is simple statistics. The federal earnings bell curve would show a very wide central band that will indicate that most (nearly all) federal employee earn more than the private sector average.

      (6) All studies show (even those by the HF) show that the feds pay has risen on a dramatic increase over the last six years. Prior to that the increase was constant and somewhat in line with the private sector. For a decade, the private sector has shown somewhat constant growth. Starting in 2009, however, the private sector wages stated to decrease. As the federal workforce took more from the private sector, there was less to redistribute through normal economic means. The bottom line here is the feds compensation over the last decade went up 37% whereas the private sector went up only 9%.

      (7) Federal employees do pay “taxes”, but the net difference is still federal spending. Their taxes could be considered our discount on their compensation. They do not seem to pay the same FICA and MC/MC taxes (i.e. percentages) as we in the private sector do.

      I am not saying there are a few federal workers who are struggling. Especially for those who work outside DC. There is a big disparity between those who work inside DC to those who work outside DC. DC federal workers get a substantial supplemental percentage added to their base pay. If DC federal employees were looked at as a microcosm, the averages would be even more insulting.

      DC Federal Employees also benefit from DC area hotel discounts (when not on the job) and other perks provided by the DC private sector. They get free Metro (public transportation) rides paid for by taxpayers who have to pay for their Metro rides. They get discounts on rent and so much more. They are definitely a privileged class in the District.

      The bottom line is that 100’s if not 1000’s of people apply for nearly each open federal job. Federal contractors are often first in line getting their applications in. The top 7 out of 10 richest counties surround DC and the top three richest counties border DC. Neighborhoods that were considered in disrepair in DC five or more years ago are now pleasant places to live with basic small townhouses selling for over $500,000. There are no Walmarts in DC as most stores are the high-end luxury stores. This all speaks for itself. If federal workers were hard up, DC would look a lot like the rest of America. Today, the only way to describe DC is lavish, rich and opulent. Of course, all pad for by tax dollars. Tax dollars from some who had to use credit cards to pay it.

    3. George Colgrove, VA says:

      First, some federal employees do provide a just and constitutional service to the nation. Some of these federal employees work with diligence and dedication in the same manner as any private sector employee. The compensation debate is not a debate of worth – it is a debate about inappropriate spending. I see no difference in the work requirements a federal employee to that of a private sector employee. Most jobs inside and outside of the federal government require nothing more than a High School Degree. We all get the same degrees from the same high schools and colleges or universities. We all live on the same streets in the same towns and so on. No one is better than the other.

      What I find fault with is I feel public employees should not enjoy special treatment in their workforce just because they are public employees. A worker in IBM provides just as much of a service to the nation as a person setting in a Social Security office. I also feel a public worker should not be sacrificing anything either. Compensation for either sector should be the same in both benefits and pay. For the few federal workers who are below their private sector counterparts (roughly 20% of all job classes) should be paid more, but those who are paid more should have their incomes reduced to that of their private sector counterparts.

      The difference with a private company and the public sector institution is that the risk and supply of cash comes from only the company. The CEO and the board of directors are the suppliers of the financial backing for their employees. This money comes from the sale of their products or services. If the CEO and board of directors get ample compensation, it goes to say the workers should also get some form of reasonable nice compensation. The opposite goes for companies going through hardships. The bottom line is the compensation for a private sector company is based on how well the company is doing in a holistic manner.

      The public sector on the other hand is obtaining their compensation mostly from middle-income taxpayers who are more than likely struggling and cannot afford paying their taxes. In addition, in this economy, many of these taxpayers are using credit cards to pay their taxes. This is where the difference lies. In the private sector, the suppliers of the money are and should do better than their workers. Currently the federal workers are doing better than the suppliers of their funding (i.e. taxpayers). This is wrong. It suggests a privileged ruling class deriving their earnings from a lesser class. It is also wrong to extort financial resources from those doing better to ensure the high pay of federal workers continues. A society cannot survive with this disparity.

      The HF is simply asking for legislation that forces the incomes earned by federal workers to be linked to the private sector. They are also generous enough to promote the concept of bonus pay for workers who go beyond the requirements of their job. I agree with this. People deserve to be paid for good performance. Also by making lesser performing workers accountable for their performance is also vital to keeping the dead weight, we all recognize is in there, is kept to a minimum.

      In addition, the appropriate use of contractors is vital to fill positions of transient or term jobs in various projects. The federal government should have ongoing retainer contracts that allow managing unit to select a contractor from an approved list, that has the best skill set for the lowest cost. In these cases contractors shall be given autonomy to do the job without a federal bureaucracy making their tasks difficult to complete. Pay for contractors should be based on performance with incentive/disincentive clauses as well.

      We will know equity has been reached when the quit rate for the public sector is roughly the same as that for the private sector. I think it is important in many ways to keeping the federal workforce in line with the private sector. Rather than base federal employment on the maintenance and management of failure, the federal workforce will be rewarded when the private sector does well. Moreover, they will strive to ensure whatever they do will make the private sector more profitable to their own benefit. By the nature of this arrangement, the public sector will truly become public servants.

      Ideally most current federal jobs should be converted over to the private sector either by privatization of programs (departments) or by using retainer contracts to provide workers to fill the ever changing needs for the federal government. It should be a goal that no job being done for the federal government will ever become idle.

      Functions that are already being done by the states should be reverted to the states to eliminate redundancy. All in all, a careful look at the federal government should result in a much smaller workforce being compensated in the same way as the private sector. This will significantly reduce the cost of government and provide full transparency of the growing controversial compensation debate that has been around for decades.

    4. Michael V. DeWeese S says:

      Mr. Mishel talks like a Federal employee. I wonder what he makes per year for what ever he does. This could account for his opinion on the out of control rate of the growth of the number of Federal employees with, extremely, high wage amounts that I've seen listed. This growth is coinciding right along with the fast ballooning Federal budget. Go figure.

      From Economic Policy Institute's web site: In 2005 through 2007, a majority of its funding (about 53%) was in the form of foundation grants, while another 29% came from labor unions. EPI also receives support from individuals, corporations, and other organizations.

      Note the 29% from the unions that are, slowly, contributing, in their own way, to jobs going over seas.I wonder where the other 47% came from? Big Brother, maybe?

    5. Mickle75, Annville, says:

      Let's not forget the National Guard military members that work as dual-status federal technicians during the week. They support their military mission during the week, but get paid out of Federal pot of money.

    6. Pingback: A Public-Sector Pay Challenge « The Enterprise Blog

    7. Linda says:

      Look, I'll take that A- – es pay over my hard EARNED pay anyday. I am quite sure it's a lot more for a little of nothing work that any of them do.

    8. Tommy, Arizona says:

      My wife is a manager in human resources for a State agency. The Feds send job openings to her office and ask them to post them so they can hire the state employees. They openly cite the increase in pan and benefits and a "lighter workload". By the way these are identical positions. Parole officers. The feds pay over 50 % better than the State. I worked for a local government and made half what the feds made for an identical position that had a lighter workload. If you feds have it so bad, quit your givernment job and go to the private sector.

    9. Joe, Massachusetts says:

      I think I'm a good case study:

      In 1986, I was discharged from the Marines. I worked in the private sector until I took a job with the US Postal Service in 1994. The company I was at went out of business. As this was the third company from which I was laid off for lack of work, I decided to accept an offer from the Postal service, even though the starting pay was $2.00 an hour less than another offer I had at the time.

      I worked my way through college and law school and graduated in 2009 with a J.D. from New England School of Law in May. On August 2d of 2009, I transferred out of the Postal Service to another federal agency. I got a "paper" raise of $1500.00 per year. I say paper because my old job paid night differential and a premium for weekend work. In my new agency, I was working days with weekends off. In actuality, I lost around $6300.00. But the quality of life and the fact that I couldn't really perform the manual labor of the Post Office anymore made the switch worth it (I suffered a major back injury in the Marines).

      My current position (GS-11, Step 1) has a base salary of $50,287.00. With the locality allowance, it increases to $62758. My job is not something I really want to disclose, except to say it involves investigation and enforcement, and my job title is "Investigator."

      I'm not going to say I'm underpaid or overpaid. And it's impossible to make a meaningful comparison with the private sector because I don't have a private sector counterpart. Unless you want to compare me to other people with law degrees. If you did that, I bet I would come in somewhere near the bottom.

      I take issue with Linda's assertion that we do little work. I had to complete a one-year probationary period and I am rated annually on 5 specific elements of performance. I have tight time limits on how many days I am allowed to investigate a given case (although I must point out that I can get more time IF I can show the need), and I even have limits on how many HOURS I am alowed to spend on that case. The point is I work just as hard as the people I went to college and law school with and the majority of them make more than me. Again, it was my choice to pursue this line of work, and I am grateful for the opportunity to serve this country and enforce some of its laws. I am PROUD of the work I do and I have no regrets.

      So you tell me, what is it that makes me such a bad guy? Why am I held to a different standard? Why do you have the right to dump all over me just because I chose this career?

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