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  • Hard to Justify Across-the-Board Federal Pay Raises

    Photo credit: Newscom

    The House just voted on a proposal to extend President Obama’s (misnamed) “federal pay freeze” for another year. While Congress has better ways of reducing excessive federal compensation, this approach beats handing out an across-the-board raise.

    Americans should not have to take a vow of poverty to work in government, but neither should government workers be paid more than they’re worth. The federal government should pay its employees about what they would make in comparable private-sector jobs.

    It does not. Economists from across the political spectrum agree that, on average, the federal government pays more than the private sector for the same work. The Heritage Foundation estimated that federal employees enjoy a 30 percent compensation premium. The Congressional Budget Office estimated a 16 percent premium. Even Alan Krueger, chairman of President Obama’s Council of Economic Advisors, agrees federal employees make more than their private-sector counterparts.

    These figures are averages that do not apply to every individual. Many of the government’s most skilled and most productive workers get paid at or below market rates. On average, however, Uncle Sam overpays.

    The government has difficulty justifying this disparity in normal economic conditions. It makes even less sense in times of rising taxes, spending, and debt.

    Even President Obama recognizes this. For the past two years, he suspended the federal annual cost-of-living adjustment (COLA). The media mislabeled this as a pay freeze. In fact, virtually all federal employees have continued to receive seniority-based raises. Now President Obama has restored the COLA as well—an across-the-board 0.5 percent increase. This will cost taxpayers $11 billion over the next 10 years.

    Congressman Ron DeSantis (R–FL) recently introduced H.R. 273, which would extend the COLA freeze through 2013. The House passed the measure today. The DeSantis bill would prevent an across-the-board increase, but this ignores the distinction between overpaid and underpaid employees. Congress would do better to cut compensation where it is most inflated.

    Federal employees pay little toward their pensions and can retire at 56. Congress should increase both the federal retirement age and pension contributions. Or Congress could turn the seniority-based “step increases” into performance-based raises that only high-performing employees earn. This would save billions without penalizing hard workers.

    Barring such reforms, DeSantis’s proposal is far better than doing nothing. Most federal employees enjoy more secure, better paid, and desirable jobs than private-sector taxpayers. Neither the budget problems nor equity arguments justify across-the-board federal raises.

    Rudy Takala is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit http://www.heritage.org/about/departments/ylp.cfm.

    Posted in Economics [slideshow_deploy]

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