Federal workers will still receive raises despite pay freeze

F. Vincent Vernuccio Director of Labor Policy, Mackinac Center for Public Policy
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President Obama’s proposal of a pay freeze for federal employees is a small step towards curbing government spending. However, a closer look shows there is less to it than meets the eye. In fact, many federal employees will still see their salaries increased.

While Obama’s plan would stop the annual across-the-board cost of living adjustment (COLA) for all federal workers, it will not stop workers from getting raises altogether. The freeze will not affect pay raises for job classification upgrades. As an official at the Office of Management and Budget told Federal News Radio, “employees will still be eligible for step increases.”

Step promotions — also known as “within-grade increases” — are mandated by statute. They are nearly automatic as long as an employee performs his job adequately. The law governing federal employee pay states, “a within-grade increase shall be effective on the first day of the first pay period following completion of the required waiting period and in compliance with the conditions of eligibility.”

Here’s how the system works. Over 70 percent of the federal workforce (except for the military and postal workers) is paid according to the Office of Personnel Management’s (OPM) General Schedule (GS) pay scale. GS includes 15 wage grades that reflect the category and skill necessary to perform a job, with 10 steps within each grade.

According to OPM, new employees can expect to receive a step increase every year, mid-level employees every two years, and senior employees every three years. Step increases can range from $728.00 for a GS 3 to $3,321.00 for a GS 15. Grade increases can range from $2,214.00 for a GS 1 to GS 2 to $14,931.00 for a GS 14 to GS 15. These numbers represent the ‘base’ amount for federal pay. The government gives a percentage increase for different areas of the country to reflect local variations in cost of living.

For example, despite the pay freeze, a government employee living in Washington, D.C., who is classified as a GS14 Step 1 and is upgraded to a GS 15 Step 2, will receive a raise of $22,672. The next year that same federal employee — without a promotion or grade increase — can see their pay go up by $4,126 through a step increase.

Even more importantly, the freeze would probably have happened anyway. Increases in federal pay and government assistance are calculated based on rising prices and higher costs. In October, the Social Security Administration (SSA) announced there would be no automatic COLA increase for the 58 million Americans receiving Social Security benefits.

SSA explained that the Bureau of Labor Statistics reported “no increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010.” In other words, an increase was not necessary because prices over the last few years have remained static. This would also apply to federal workers. Many federal employees would still receive step increases but not a COLA.

President Obama said the freeze “would save $2 billion over the rest of this fiscal year and $28 billion in cumulative savings over the next five years.” Some economists claim that barely scratches the surface of the real savings that could be achieved if federal pay were brought into line with private sector wages.

Federal salaries have ballooned over the last few years and are far greater than salaries in the private sector. USA Today reports that, “the number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office”

As James Sherk of the Heritage Foundation notes, “Federal employees earn between 30 percent and 40 percent more than equivalently skilled private-sector workers…[M]ost federal compensation is not a contractual obligation and Congress can reduce it in those positions which are overcompensated. If Congress reduced this federal pay to market rates this would save taxpayers about $47 billion a year.”

Chris Edwards of the Cato Institute also discusses the inequity between federal government workers and those in the private sector. In a June study, he found that government sector workers earned an average annual wage of $81,258 in 2009, while private sector workers only earned an average of $50,464. He also notes that government salaries rose on average by 58 percent in the last decade while private sector salaries rose by only 30 percent.

Union officials have strongly criticized the freeze. American Federation of Government Employees President John Gage denounced it as the “scapegoating” of federal employees and “a superficial, panicked reaction to the deficit commission report.” AFL-CIO President Richard Trumka called the freeze “bad for the middle class, bad for the economy and bad for business.”