Study rekindles debate over federal pay and benefits

A right-leaning Washington think tank once again has added fuel to the debate over federal employee pay with a report asserting civil servants earn significantly higher salaries and more generous benefits than their private sector counterparts, while enjoying far greater job security.

But the Heritage Foundation study, released on Wednesday, acknowledged that in certain highly skilled occupations, public servants are earning less than they would in the private sector, and it advocated against a universal pay freeze for federal employees. Lawmakers recently have suggested such measures in attempts to rein in spending, but so far Congress has rejected the proposals.

In an analysis of existing data from the Bureau of Labor Statistics and Bureau of Economic Analysis, James Sherk, a Heritage senior policy analyst in labor economics, found even after adjusting for factors such as age, skill level and education, federal employees earned 30 percent to 40 percent more in total compensation -- including wages and benefits -- than private sector workers in comparable jobs.

According to Sherk, a first look at cash earnings shows the average federal employee brings in $28.64 an hour, compared to $18.27 in the private sector, a differential of 56.8 percent.

"The different skills and characteristics of federal employees only partially explain these higher cash wages," Sherk wrote. If you adjust for "observable characteristics" like education and demographic, the gap dips to 31 percent.

Colleen Kelley, president of the National Treasury Employees Union, said the report was wrong.

"The real fact, as determined by the Bureau of Labor Statistics, is that federal employees are paid, on average, 22 percent less than workers in the private sector," Kelley said. "Analysts agree that BLS data, derived from surveys of like public and private sector jobs and taking into account the locations where the work is performed, make up the final word on the public-private sector pay gap in favor of private sector employees."

Sherk acknowledged his analysis ignores occupational wage differentials. In other words, different types of workers earn different wages; managers typically make more than administrative staff, for example. "If the federal government employs a different occupational mix than the private sector, this may account for federal workers' otherwise unexplainably higher wages," the report stated.

Sherk said controlling for occupation is a serious challenge, particularly when comparing federal jobs to those in the private sector. Many federal employees, such as Internal Revenue Service agents, have few private sector counterparts, if any at all. But various analyses still show higher wages for federal workers on average, he said.

According to the report, the federal employees who earn less than they would in the private sector tend to be highly skilled, such as engineers, lawyers, economists and scientists. Those with the highest wage premium for federal work tend to be more moderately skilled, such as book-keeping clerks, security guards, social workers and receptionists, the study found.

"Congress should not cut federal pay across the board -- this would unfairly penalize the federal workers who earn market wages," Sherk wrote.

In addition to higher pay and better benefits, the report stated, "Federal civil servants receive another perk that few private sector workers enjoy: near-absolute job security." Citing Bureau of Labor Statistics data, Shrek noted the unemployment rate in the private sector jumped drastically between 2007 and 2009, from 4.2 percent to 9.4 percent. For federal employees, unemployment stayed almost flat, edging up from 2 percent to 2.9 percent.

Sherk urged lawmakers to take steps to "equitably align federal pay with market rates." The report recommended lawmakers abolish the General Schedule and implement performance-based pay, hire more private contractors, reduce federal benefits and end dismissal restrictions to make it easier to fire a poor-performing fed.

Under the recommended new pay system, the Office of Personnel Management would set broad paybands for each occupation and region of the country with managerial discretion to award raises for good performance, subject to budget limitations. The report stated OPM should adjust paybands up or down based on qualified applicant-to-position ratios and quit rates.

"This would align federal pay with market rates while allowing high-performing federal workers to earn what their skills merit," Sherk wrote.

Kelley came out hard against Sherk's recommendations.

"Turning more government work over to unaccountable private contractors -- as the policy of the previous administration clearly showed -- results in higher costs and lower-quality work for taxpayers," Kelley said. "Reducing federal employee benefits would simply make it even more difficult for federal agencies to recruit and retain the high-quality employees the public expects -- and needs -- the federal government to have. And federal agencies have many tools to deal with underperforming employees, whatever 'restrictions' exist on dismissing underperforming employees actually are the due process rights to which everyone is entitled."

According to the Heritage report, bringing federal compensation in line with private sector compensation would save taxpayers approximately $47 billion in 2011. "Doing so would not solve the country's fiscal problems, but would be a solid -- and fair -- step toward a more responsible fiscal policy," Sherk said.

OPM Director John Berry recently acknowledged the challenges of framing pay-related discussions with strong metrics. He called on statisticians from OPM, the Bureau of Labor Statistics and neutral parties such as the Administrative Conference of the United States and National Academy of Public Administration to try to develop a formula to compare federal and private sector pay that would be more universally accepted.