Federal Pay: Another Battle in the War on the Middle Class

Charles Smith is a retired Army civilian employee hero, who went up against the Iraq contractor KBR on behalf of the troops and the taxpayers and was demoted. Smith was chief of the Field Support Contracting Division of the Army Field Support Command in Rock Island Arsenal, and one of his main jobs was to oversee the enormous Army contract with KBR during the Iraq and Afghanistan wars. In 2004, he became concerned when the auditors of the Defense Contract Audit Agency (DCAA) told him that KBR could not justify more than a billion dollars in spending because of their chaotic documentation.

He backed the auditors and would not sign off on payments and bonuses to KBR until they provided documented proof of their costs. He also backed DCAA and told KBR that he would legally be withholding 15 percent of all payments to KBR until their auditing systems caught up to their spending.

KBR, with their enormous influence and ability to stop their work on the Iraq and Afghanistan bases, pushed back. Smith was replaced and shuttled off to look at future contracts, while his replacement approved and paid KBR the money without major changes in the billings. That contract, known as LOGCAP III, has now provided KBR with over $40 billion for slinging hash, doing laundry, driving trucks and building barracks in Iraq and Afghanistan. For the full picture of what can happen when a contractor “owns” the service they are working for, i.e. the US Army, see a New York Times profile outlining how Smith, with all his experience, could not get away with doing the right thing for the troops and taxpayers.

In this Solutions column, Smith debunks much of the dueling studies on whether federal pay is higher than the private market. I have looked at these studies since 1979 with all the politics involved and have decided that it is very hard to calculate these apples and oranges empirically, so politics gets control of the methodology and twists the facts to fit the mood of politics at any given time. A recent article in the Federal Times backs up my concerns.

A better comparison is to compare what federal workers are paid compared to companies that have employees doing the outsourced federal work. I have written a column on that problem, and it would probably surprise few readers here to know that the outsourced workers make more than their federal counterparts and make more than similar jobs in the private sector. But Smith makes a good argument here that federal workers are not overpaid but, instead, the private-sector workers have been losing wage power for decades and are underpaid as the middle class struggles to survive.

Dina Rasor, Solutions column editor

In January 2102, the Congressional Budget Office (CBO) released a report entitled “Comparing The Compensation Of Federal And Private-Sector Employees.” The report found that federal pay and benefits, designated compensation, are, on average, 16 percent higher than comparable private sector compensation. The 16 percent was comprised of a 2 percent salary differential and a 48 percent benefits differential, both in favor of federal workers. The study behind the report compared compensation for jobs with “certain similar observable characteristics.” These included education, years of experience, size of employer and geographic location. In this manner, the report aimed to present a fair picture of this compensation comparison.

This report has now become the basis of a concerted attack on the compensation of federal employees, mainly by the Republican Party. The House Republicans used the report to support a proposed extension of the federal pay freeze for another year. This is now an issue in the extension of the payroll tax reduction. Senate Republicans have gone further in proposing to eliminate the cuts in defense spending by cutting both the number of federal employees and their compensation, again citing the report.

The first question we may ask is shall we accept the 16 percent number proposed by the CBO? The quick answer is: no. Federal compensation is also studied by the president's federal pay agent through the Federal Salary Council. Their basic role is to examine the difference between federal salaries and private-sector salaries in a large range of localities. They do not compare benefits. Their latest report, issued on November 22, 2011, found a significant average gap of 51 percent in salary, not in favor of federal employees. This gap is radically different from the 2 percent advantage for federal employees, found by the CBO. The difference appears to be in methodology, with the Federal Salary Council placing more emphasis on location and the actual content of the jobs which are compared. Due to the 2011 federal pay freeze, the Council found that the gap had increased last year.

Were we to combine the Federal Salary Council's 51 percent pay gap for federal employees with the CBO's 48 percent compensation advantage, we would find that federal employees are undercompensated by roughly 37 percent, on average. Frankly, I am not sure that this figure is accurate, just as I distrust the CBO study. These comparisons are hard to do, as federal jobs are often quite different from any private-sector jobs. This is especially true in the Defense Department where I worked for 31 years.

When I began my career in government ,the Carter administration reformed federal pay practices and instituted a yearly pay comparison. The law required that any gap between federal and private pay be eliminated. However, the first survey found approximately a 23 percent gap, which would have been excessively costly to eliminate in one year. The government used a loophole in the law, declared a state of emergency and did not close the gap. Every year after that, the emergency persisted and no effort was made to close the gap by increasing federal pay.

Looking at economic data, other than the studies, I am convinced the gap has been reduced, but not completely closed. The reason has been the Republican war on the middle class. The attacks on unions, lack of support for labor under Reagan and the two Presidents Bush, changes in tax laws, and other actions have caused salaries for the middle class to stagnate for much of the last 30 years. If the gap has closed, it is not because of increased federal pay, but decreased private-sector pay.

The Economic Policy Institute (EPI) has documented this stagnation of wages in charts such as this one:

Click here to view larger.

Now Republicans are using the CBO comparison to attack another portion of the middle class, federal employees. There are no federal employees who earn enough to by above the middle class. The only federal employees who may make salaries near $250,000 are a few medical doctors employed by the Department of Health and Human Services and exempt from pay caps.

This Republican attack is part of a concerted attempt to reduce the income, wealth and, thus, political leverage of any group which might vote for Democratic candidates. Civil servants have always been a Republican target, as they understand the ability of the federal government to actually accomplish public goals. This is a major reason they work for the federal government. This also makes them prone to vote for Democratic candidates who share this view of government. By reducing federal pay, you reduce the ability of small contributors to support Democratic candidates.

By using the false claim that federal employees are overpaid, Republicans are working to obtain another political advantage. Those of us worried about the possibility of a “permanent Republican majority” should actively oppose this attack.