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August 30, 2010

Finding a Way to Fix Federal Pay

By

Government jobs have long enjoyed a reputation for being plum positions. But it took Robert Rizzo to really make the case.

Rizzo is the man who became famous last month for the unbelievable salary he was pulling down as city manager of Bell, Calif. - $787,000 a year, nearly double President Obama's salary. Who knew that running a city of 38,000 was so difficult? Voter outrage forced Rizzo to tender his resignation. But the joke is on taxpayers. Rizzo can now collect a pension of $650,000 a year. By the time he turns 65, his pension will rise to more than $1 million annually.

Fortunately, government salaries this lavish are the exception, not the rule. But, despite what John Berry, the government's personnel chief, said in a recent statement, government employees do make more on average than comparable private-sector workers. Jobs with state and local governments are known for their generous benefits. Fewer people know that federal employees also get overpaid.

Federal workers perform more skilled work than most private-sector employers, so they naturally earn higher wages. The unions representing federal employees insist that their higher skills explain federal employees higher pay.

But it does not. Even accounting for their skills and education, the average federal employee earns substantially higher wages - 22 percent higher - than they would in the private sector. And that's just cash earnings. The federal government offers gold-plated benefits, too. The Federal Employees Health Benefits Program offers excellent coverage without age, health or pre-existing condition requirements. Federal employees also get a government pension and can retire as young as 56 with full benefits. How many workers in the private sector do that? Federal employees also get fantastic leave benefits. After three years on the job they get four weeks' vacation a year, all 10 federal holidays and 13 sick days - all paid. Few Fortune 500 companies could afford to offer employees that much time off.

If you include the value of these benefits the average federal employee's total compensation rises to 30 percent to 40 percent above comparable private-sector workers. Federal employees enjoy another perk unheard of in the private sector: near absolute job security. Federal employees rarely lose their jobs for poor performance. Once they have put in a year on the job it becomes almost impossible to fire a civil servant. Recessions do not put their jobs at risk either.

Unsurprisingly, federal employees quit only one-third as often as private sector workers do. They seem to know they could not find a better job elsewhere.

Yes, a job with Uncle Sam is nice work, if you can get it.

This generosity, however, costs taxpayers a bundle. If the government reduced federal compensation to private-sector rates it would save $47 billion next year - more than $400 per income-tax filer. The problem with overpaying federal workers goes beyond simple unfairness. The taxes that fund this generous pay hurt the economy.

Congress plans to significantly raise taxes on dividends and savings at the end of the year, as well as the top tax rates paid on small-business income. Small-business owners already rate taxes as their second-largest problem. These new taxes would discourage entrepreneurs from taking the risk of starting new ventures and investors from taking the risk of funding them. Thus tax increases mean fewer jobs. Reducing federal pay to private-sector rates would allow Congress to keep taxes lower and the economy stronger. That doesn't mean Congress should cut federal pay across the board.

These figures are only averages. Because the government largely bases raises on seniority and not performance, many hard-working federal workers do not get overpaid. These workers should not get their pay cut.

Congress should go to the root of the problem and completely reform how the government pays its employees.

Uncle Sam should move to performance-based pay based on market rates - the same system most private employers use. The government should also bring federal benefits in line with the private sector and allow managers to fire poor performers.

These reforms are common sense. Federal employees shouldn't get more than those whose taxes fund their salaries, especially when those taxes discourage businesses from hiring. The government shouldn't put federal workers' premium pay above jobs for the unemployed.

James Sherk is a senior policy analyst in labor economics at The Heritage Foundation.

First appeared in the Sacramento Bee

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