Pay raise or inflation catch-up: Be careful what you wish for!

So is the grass always greener on the other side? Or just sometimes? Take, for instance, cost of living adjustments for federal, military and Social Security recipients. Bigger is always better, right?

Or is a super-sized COLA a yes, no, maybe or it-depends sort of thing?

If all goes well, to the White House plan, white collar federal workers will be getting a 4.6% pay raise in January, 2023. That amount, first reported by Federal...

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So is the grass always greener on the other side? Or just sometimes? Take, for instance, cost of living adjustments for federal, military and Social Security recipients. Bigger is always better, right?

Or is a super-sized COLA a yes, no, maybe or it-depends sort of thing?

If all goes well, to the White House plan, white collar federal workers will be getting a 4.6% pay raise in January, 2023. That amount, first reported by Federal News Network, will be in the budget the president sends Congress next month. While that is the largest proposed in many years it could, when the economic dust settles, be much smaller than the 2023 cost of living adjustment for feds, Social Security and military retirees. Final amount TBD later this year.

We won’t know the actual pay raise until Congress and the White House sign off on it. We won’t know the final amount of the COLA (for FERS, CSRS and Social Security retirees) until next October. It will be based on the rise in living costs (as measured by the Consumer Price Index) next year. Currently the inflation rate is 7.5%, the highest in 20 years. It could go up, drop or remain level. Time will tell. Last month CSRS and Social Security retirees got a 5.9% COLA and those under FERS got the 4.9% diet COLA. Both were among the biggest in years.

While many people confuse raises vs. COLAs, they are totally different statistical critters.

Many retirees miss the good old days of pay raises. Many active duty feds can’t wait to retire so they can (if they’re under CSRS) keep up with inflation. Sometimes each group envies the other. Both have a point.

Up to a point.

Sometimes.

Lots of people track federal pay raises and retiree COLAs. Back when Congress controlled increases for Social Security the retirees nearly always fare better than workers. At least on a percentage basis. But since adopting the “new” system, which links retirees to actual inflation (as measured by the CPI-W) while workers get raises based on fiscal situations and politics, the workers have done better (as in getting slightly higher percentage increases) than retirees.

Both sides can make a case that the other side is getting the best deal. But according to the bipartisan Congressional Research Service, the pay raise side has been doing better than the inflation-followers. That, it explains, is because pay raises were designed to reflect one thing, including productivity, while COLAs are supposed to guarantee retirees protection against inflation. Sometimes the two vary, greatly. Here’s the language from a CSRS Report dated Jan 10, 2010. It said:

Pay increases for current federal workers and COLAs for retired federal workers often differ because they are based on changes in different economic variables. Pay increases for federal workers are based on changes in private-sector wages and salaries, whereas COLAs for retirees are based on increases the general level of prices in the national economy. The objective of federal pay policy is to keep pay in the federal government competitive with pay in the private sector. Increases in pay for federal civil service workers therefore are indexed to increases in the wages and salaries of private-sector employees. Over time, wage increases reflect increases in the nation’s output of goods and services as well as price increases. Because wage increases in the private sector reflect growth in the productivity of labor, wages tend to increase faster than prices when measured over long periods of time. Social Security benefits and federal retirement annuities are indexed to increases in the CPI, which measures changes in the price of a market basket of consumer goods and services. Congress has linked COLAs for Social Security and federal employee pensions to the rate of increase in the general level of prices to protect retirement income from losing purchasing power through the effects of price inflation. COLAs ensure that a retiree’s income will purchase the same amount of goods and services after years of retirement that it purchased at the start of retirement. COLAs do not reflect increases in the productivity of people who are still in the work force, and thus they do not increase the real purchasing power of retirement income. COLAs do not make retirees better off financially; they merely protect them from becoming financially worse-off over time as prices rise.

Nearly Useless Factoid

By David Thornton

Fresh water is only 2.5% of the total water on the Earth. Of that, about 69% is trapped in ice caps and glaciers. About 1.2% of fresh water exists on the surface in forms that support life.

Source: USGS

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