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the federal wage freeze

With these words, President Obama announced an across the board pay freeze for Federal workers:

In these challenging times, we want the best and brightest to join and make a difference.  But these are also times where all of us are called on to make some sacrifices.  And I’m asking civil servants to do what they’ve always done — play their part.

Anyone looking at either the politics or the substance of our America’s budget deficits recognizes that something should be done about the federal budget.  But is asking 2.1 million workers to shoulder the burden the right approach?  And even if it is, is doing it in an “across the board” freeze, the right way to go? No it’s not. Here’s why.

First, a couple of facts are in order:

1.  The federal workforce has been relatively flat since the early 1990s (in the chart on the left, the red line is the one in question; the blue line includes military and postal service employees).  And yet, discretionary Federal spending has increased dramatically.  What accounts for that?  While some of that additional spending goes to expensive capital investments like airplanes and embassies and tanks, a very significant portion of it has, indeed, gone to hiring people.  Those people just don’t work for the Federal Government.  At least, not directly.  Since 2000, the number of contractors employed by the US government has increased in relative proportion to the increases in spending.

That shift is perfectly consistent with what one would expect: see, for instance, Matthew Bidwell’s work which followed the porousness of a bank’s organizational boundaries during the recession of the early 2000’s: when the bank imposed hiring freezes, the managers shifted to contingent workers.  Problem solved.

2.  Federal Workers’ wages have gone up faster than wages in either the Private Sector or among State and Municipal workers.  But a couple of points on why this is the case are called for:

  • When President Bush launched the Iraq War, he signed legislation giving a raise to soldiers and to civilian employees of the Defense Department.  President Obama has announced that the current freeze will apply only to non-Defense civilian employees.  While I don’t have this data readily available, the timing of the jump in civilian pay on this chart leads me to believe that a significant portion of the jump in the rate of increase of civilian workers’ pay is connected to the raises given to defense department employees.  Not to say those increases weren’t deserved, but the current plan will simply reinforce the already significant gulf between Federal workers who are connected to military operations and those who are not.
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  • The (largely unenforced) Federal Pay Comparability Act of 1990 provides for locality-based pay adjustments (brief point of disclosure: in the late 1990s, I was a staffer to the two  boards that this legislation created to oversee federal employees pay.  Surveys are diligently performed each year, but for the 20 years of its existence, the President has invoked a clause in the legislation allowing for exceptions in the case of “national emergencies” that allows the President and the Office of Management and Budget to treat the surveys as a guideline rather than determinative).  Two guesses as to which region of the country has seen the largest year on year wage increases since 2008: Washington, DC.  That actually makes sense: DC is one of the very few metro-areas that has fairly consistent (private sector) employment.  So, as that particular labor market heats up, the Federal government has had to keep pace.
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  • Try this thought experiment: you are the manager of, say, a national forest, an office overseeing the school lunch program, or the Federal attorney’s office in your local city.  Employees are mad and some are threatening to bail to the private sector.  What do you do?  First, you might try job-title inflation: give someone a title that allows her to be paid her reservation wage.  Second: go the contracting route. From a free-market perspective, that might seem like a good thing since the government’s role becomes arbitrating the efficacy of the vast government contractor workforce.  Until you realize that the vast majority of contracts are renewed year after year with relatively little regard to performance.

What I take away from these facts is:

  1. Its not clear to me that the President’s action will have much impact: the real money is in the Defense Department and in the “shadow government” of ballooning contractors.  He’s not touching either of those, so… what’s the point?
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  2. Its not clear to me that it makes sense to target the wages of all workers equally.  The inflation in wages is concentrated both by department and by geography.  Why make everyone suffer equally?  There’s no strategy in that.  And the truth is, there are priorities.
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  3. In the end, managers will find ways around a blanket wage freeze and the system that is meant to provide a fair and transparent process for determining federal workers’ wages gets shoved further and further out of whack.

There are alternatives.  My suggestion would be to cap the amount that agencies can spend on BOTH salaries and outside contracts.  This would have the effect of cutting spending while giving agencies (and hopefully the duly elected representatives of Agencies’ workers) the flexibility to adjust to a new normal with transparency and without resorting to underhanded tactics.  It would be more effective, more fair, more transparent, and better for the long term viability of the federal workforce.

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Written by seansafford

December 1, 2010 at 8:05 pm

3 Responses

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  1. As a state employee whose salary has been frozen for the past two years, I cannot muster much sympathy for Federal workers facing the same fate. As the State (and other states) consider(s) reconfiguring their retirement programs, I feel badly for those who will not have the eternally cushy Federal retirement benefits that will never be touched by allegedly austere wage freezes.

    You are correct about how the gaming might occur, but we know that this is all about “optics”.

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    Randy

    December 1, 2010 at 11:28 pm

  2. Points taken. There are plenty of problems at all levels. But I don’t think this is about fairness. It is about optics and turning away from a rational approach to government.

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    seansafford

    December 1, 2010 at 11:34 pm

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