March 31, 2004

March 31, 2004 | WebMemo on Federal Budget

Unfunded and Unnecessary: The Truth About So-Called "Pay Parity"

This year's budget debate has been informed by the pressing need to tighten the belt on spending. Yet some in Congress are calling for Civil Service employees to receive a pay increase more than twice that proposed by the President. Proponents of the larger increase claim that Civil Service employees are underpaid, despite that recent growth in Civil Service pay has far outstripped inflation. Their proposed 3.5 percent pay hike would double increases in the cost of living and would cost taxpayers $2.2 billion. Given the current need for fiscal restraint, enacting this pay hike would be irresponsible.

Misplaced "Parity"
The President's FY 2005 budget proposes a 1.5 percent increase in pay for Civil Service employees. This cost-of-living increase keeps pace with recent years' low rate of inflation. The Administration's request balances well the interests of federal employees and federal taxpayers in light of the current state of the fiscal ledger.

But Congress now threatens to ignore the President's good example. Rep. Tom Davis (R-VA) has proposed a 3.5 across-the-board pay raise so that Civil Service employees achieve "pay parity." The President's budget increases the amount that the men and women of the armed forces by 3.5 percent. The military receives larger increases than civilian employees, but-as the President understands-these are an especially high priority. Since 9/11, soldiers have been placed under heightened stress and have faced expanded commitments. A generous pay raise recognizes the sacrifices they and their families have made and continue to make on behalf of the country. This rationale, however, does not extend to federal civil servants, whose lives and families don't face the risks that America's military men and women do. The 3.5 percent increase makes sense for the military, but not for civilians.

An unfunded mandate
Because there is no funding provided for increased Civil Service salaries, proponents of this resolution claim that it would have no budgetary effect. But if no additional funds are allocated, government agencies will be burdened with a $2.2 billion unfunded mandate. This will raise baseline spending across the government, making it more difficult for agencies to prioritize spending and realize the benefits of making prioritized cuts.

Moreover, if Congress is concerned about the attractiveness of Civil Service employment, it would do better to consider further improvements in performance-based compensation for government employees. Beyond that, the President's budget addresses cost-of-living more than adequately.

Previous Salary Growth for Civil Service Employees Congress has been generous to federal civilian employees in recent years. Over the last seven years, the Consumer Price Index and the Social Security Cost-of-Living Increase have gone up by 18.3 percent, an average increase of 2.3 percent per year. At the same time, Federal Civil Service pay has increased 30.8 percent, or, on average, by 3.9 percent per year.

Not the private sector
Proponents of "pay parity" claim that this steep increase is necessary because government jobs pay 32 percent less than comparable private sector jobs. These comparisons, however, are flawed. When regional pay variations and the value of pensions and benefits are factored into the analysis, the gap shrinks considerably. Indeed, the government may be compensating its employees above the market rate, as evidenced by the low rate of federal employees leaving government employ. While private-sector industries have turnover rates of 10 percent to 12 percent (or higher), voluntary federal attrition has reached a historic low of 1.6 percent. And after federal employees become vested in the federal retirement system, almost no one leaves. The great interest in federal job openings is another sure-fire sign that the federal government does not underpay its workers.

Maintain the President's pay increase
If Congress is concerned about spending and the deficit, it should see this pay raise for what it is-irresponsible and unnecessary. The President's budget proposes a prudent 1.5 percent increase for federal Civil Service employees, an amount that is in keeping with both fiscal restraint and the needs of the federal workforce.

Keith Miller is a Research Assistant in, and Alison Fraser is Director of, the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Alison Acosta Fraser Senior Fellow and Director of Government Finance Programs
Domestic and Economic Policy

Related Issues: Federal Budget