Pay

Federal pay falls even further behind the private sector

Over the last year, federal sector wages fell 27.54% behind those in the private sector, a more than 3% jump in the pay gap since 2022.

Drew Friedman@dfriedmanWFED

November 14, 2023 6:31 pm

6 min read

Most federal employees are inching toward what will likely be a 5.2% pay raise in 2024. But even that big of a boost won’t be enough to offset the growing wage gap between the federal and private sectors of the nationwide workforce, according to the Federal Salary Council.

Over the last year, federal employees earned on average 27.54% less in wages than their private sector counterparts. The Federal Salary Council, composed of federal and labor leaders, reported the updated number in a public meeting Tuesday. It’s more than a 3% increase in the pay disparity since the council’s previous report of a 24.09% wage gap during 2022.

The percentage-based pay gap has remained in the low- and mid-twenties for several years, and has stayed consistently above 20% since March 2007, the Federal Salary Council working group noted in its latest report.

Still, the new 27.54% figure isn’t the highest disparity feds have seen in recent years. From about 2015 to 2018, federal employees’ salaries fell more than 30% behind those in the private sector. The disparity was nearly 35% in 2015. Notably, during that same time, federal employees had a few years of smaller pay raises of about 1%.

The Federal Salary Council analyzes federal-private wage gaps based on calculations from the Bureau of Labor Statistics and data from the Department of Labor. The council compares the salaries of federal and private sector jobs that have similar duties.

Not everyone agrees on the council’s calculations for the federal-private wage gap, however. In recent years, organizations including the Congressional Budget Office and the Cato Institute, a libertarian think tank, said by using Bureau of Economic Analysis data and including the value of federal benefits such as health care and retirement, federal pay actually reaches above that of the private sector, in some years by as much as 80%.

But other experts said federal pay has continued to fall behind the private sector in large part due to decades of evading the full implementation of the Federal Employee Pay Comparability Act (FEPCA). The law, passed in 1990, authorized the funding needed to give feds big enough pay raises to bring the wage gap down to just 5%.

Since 1994, no president of either party has signed off on a pay raise that large. At this point, it would cost $22 billion to bring General Schedule (GS) federal salaries in line with the private sector, the President’s Pay Agent reported in October.

Pay raise prospects for 2024

In what has become an annual tradition, instead of going with FEPCA, President Joe Biden sent an alternative pay plan to Congress in August, aiming to offer a 5.2% average pay raise for both military and civilian employees in 2024. The proposed raise consists of a 4.7% base pay raise plus an average of 0.5% locality-based raises.

But in light of the new numbers from the Federal Salary Council, the National Treasury Employees Union advocated for an even higher pay raise in 2024 through the FAIR Act. If enacted, the bill would offer an 8.7% average raise to GS employees.

“The alarming new pay gap proves what federal employees have been feeling all year — their paychecks are not keeping up with inflation and monthly bills are increasingly harder to cover,” NTEU National President Doreen Greenwald said. “It is outrageous that our nation’s civil servants have lost ground in the fight for fair pay, and it makes our push for an adequate raise in 2024 all the more urgent.”

A data analysis that Federal News Network conducted earlier this year also showed that for more than a decade, federal pay raises haven’t kept pace with rising salaries in the private sector. The analysis compares annual federal pay raises against the BLS’ Employment Cost Index (ECI), which measures how much private sector wages grow each year.

A different way to calculate federal pay raises?

During the Federal Salary Council meeting Tuesday, representatives from several counties across the country urged the council to consider establishing new locality pay areas or research areas in their regions to try to bring their locality-based raises above the baseline “Rest of U.S.” category.

In its report, the Federal Salary Council’s working group recommended rethinking how annual federal pay raises are calculated. The working group said one possibly better way of addressing pay disparities across different localities may be to provide the full ECI as the base GS increase and include somewhere between a 0.5% and 1% locality pay bump on top of that.

“That might be better than creating new locality pay areas and possibly waiting for years for their locality pay percentages to grow much beyond that for the Rest of U.S.,” the council working group said in its report. “The president could then use any amount reserved for locality pay increases to vary those so that the areas with higher pay disparities could receive larger increases to reduce their pay disparities.”

“These two changes together would help reduce pay disparities at a faster rate,” NTEU said.

Biden did go with the ECI as the base pay raise in his 2024 plan — but of course, that’s not always the case.

Other recommendations from the council

Each year, the Federal Salary Council considers adjustments and additions of different locality pay areas and the processes for comparing federal and non-federal wages. Along with reporting the updated pay gap, the Federal Salary Council approved all nine recommendations from the working group.

Those recommendations did not add any new locality pay areas for 2025, but for 2024, the President’s Pay Agent approved, and OPM plans to implement, four new locality pay areas, which will increase the salaries for tens of thousands of federal employees beginning in January.

The council’s recommendations for 2025 maintained existing counties and regions on its “research areas” list, meaning they can be considered as potential new locality pay areas at some point in the future. One approved council recommendation would also look at lowering the barrier to entry for different counties or regions across the country to be considered as research areas.

Despite not adding any new research areas for next year, the council plans to evaluate more pay disparity data so it can continue and expand its studies of pay in as many additional locations as resources allow.

The council did recommend that Wyandot County, Ohio, be added to the Columbus, Ohio, locality pay area and that Yuma County, Arizona, be added to the Phoenix, Arizona, locality pay area. The council said both of these counties are currently entirely surrounded by areas with higher locality pay, and therefore should be added to the existing localities.

Additionally, the council voiced its official support for the recommended 5.2% pay raise for 2024, as well as any potentially forthcoming plans to address worsening pay compression for career senior executives in government. The council said years of locality pay bumps place more strain on legal pay caps and exacerbate pay compression over time.

The President’s Pay Agent and the Biden administration have repeatedly called for fixes to pay compression and other federal pay reforms, but so far, no official proposal has been put forward on how to actually address the issues.

The Federal Salary Council plans to send its nine finalized recommendations up the chain of command in the coming months. The recommendations will head to the President’s Pay Agent for review and potential approval.