By Paul Chassy, Ph.D., J.D.
The House Oversight and Government Reform Subcommittee on Federal Workforce, U.S. Postal Service, and Labor Policy conducted a hearing on March 9 addressing whether federal workers are underpaid.
Does Comparability Exist?
John Berry, the Director of the U.S. Office of Personnel Management, testified that according to the President's Pay Agent Report, federal employee compensation, on average, is nearly 25 percent lower than private sector compensation. His testimony was supported by Colleen Kelley, the National President of the National Treasury Employees Union (NTEU), but rebutted by two think tank economic analysts (from the Heritage Foundation and the American Enterprise Institute) who testified that their studies showed federal employee compensation, on average, is nearly 25 higher than private sector compensation. Such conflicting assertions point to the criticality of the second matter; namely: what is the appropriate methodology for measuring "comparability"?
How Is "Comparability" Measured?
"Comparability" of federal employee compensation with private sector compensation is legislatively mandated. Establishing agreement on whether and how that standard is met involves complex matters that were ostensibly the subject of the Subcommittee's hearing. As the testimony clearly demonstrated, there seems to be no agreement on any of the three matters.
Utilizing different methodological approaches to "comparability" results in significantly conflicting results. The approach used by the think tank analysts sought to compare what a private sector employee "occupation X" is compensated with what a federal employee "occupation X" is compensated. They testified that their analysis took into consideration various factors such as education and experience. The approach used by government analysts sought to compare what an "occupation X" is compensated for performing a specific type and level of job both in the federal and private sector.
As advocates for both sides acknowledge, this is a critical distinction for a number of reasons. First, when the think tank analysts focus upon individuals who are employed as an "occupation X," their analysis of compensation data may factor in education and experience, but it fails to factor in the complexity of job performance that may justify differential compensation rates, whereas government economists recognize that large numbers of federal employees are required to utilize higher level skill sets for a given occupational classification in order to perform far more complex tasks. The government's General Schedule sets out grade levels for pay that reflect differential skills and responsibilities that are not built into the government's data collection survey of private sector employees upon which the think tank analysts relied. We hope the Subcommittee follows up and engages the witnesses on this issue to illuminate the relative merits/demerits presented by these conflicting approaches and how best to reconcile them.
Second, the government Pay Agent Report sets forth a sophisticated methodology to account for the fact that federal employees provide services that are not, and cannot be, replicated in the private sector. Additionally, the Pay Agent analysis takes into account that the government is the nation's largest employer, and compensation for employees of large scale enterprises is significantly different than for employees of small scale organizations. In contrast, the think tank analysts relied upon government reports that provided average compensation rates, without regard to the fact that there are many occupational classifications for which there is no comparability across employment sectors or the fact that data for employees of small scale organizations for which there is no comparability for comparisons of private sector and federal employees was included.
Third, neither the Subcommittee nor the witnesses addressed the fact that certain federal employees are engaged in functions that are inherently governmental, and consequently, there is (or should be) no private sector employees performing these services. In certain cases, there might be no private market to determine the appropriate level of compensation for these services, and it goes without saying there are no persons in the private sector whose compensation can be compared with federals employees to determine whether the "comparability" standard is being met. Nevertheless, when analysts conduct research and present findings, their claims that government employees compensated at significantly higher rates than private sector employees are necessarily distorted because they have compared the compensation of hundreds of thousands of federal employees who perform inherently governmental functions with private sector employees who may have similar occupational classifications but perform none of the same functions.
How Is Comparability To Be Met?
There was some discussion concerning how best to assure "comparability." Republican Subcommittee members suggested that because government workers are, on average, compensated at a rate significantly higher than private sector worker, their pay should not only be "frozen," but reduced. (When challenged, OPM Director Berry insisted that additional compensation for the 67 percent of the federal workforce who receive within grade step increases and performance bonuses amounting to less that $1,000 per employee does not conflict with the President's assertion that federal employee earnings will be frozen over the next two years. Thus, the administration's assertion that they have imposed a "freeze" is somewhat disingenuous.) Ranking members, as well as OPM Director Berry and NTEU's Colleen Kelley argued that federal employees are recognized for providing a high level of service and should not be punished for economic conditions outside of their control. They argued, further, that should they be required to accept a reduced income, the government runs the risk of heightened attrition at a time it can least afford to lose many of their most experienced employees. Testimony provided by all the witnesses agreed that that higher level government professionals are compensated at lower levels than their private sector counterparts, yet they are in the strata of government employees who provide the most critical services. Consequently, any across the board reduction in pay is most likely to pose a substantial risk that this important stratum of the federal workforce would suffer the greatest attrition rate. This is another issue the Subcommittee might want to explore as they finalize the hearing record.
One of the think tank analysts proposed that one way to assure comparability would be to outsource government jobs to the private sector, on the assumption that if private sector employees are paid less for providing certain services than federal employees, outsourcing these services to private contractors would result in tens of billions of dollars of savings to the government. Rep. Stephen Lynch (D-MA) responded by citing government reports of excessive contractor costs in Iraq and Afghanistan. The dramatic increase in federal contract spending in recent years also calls into question whether the government has achieved these purported savings.
POGO's forthcoming report on the true costs of outsourcing will further question the think tank's claim.
Paul Chassy is an investigator at POGO.
Image by Flickr user pattie74_99, used under Creative Commons License.