Another attempt to determine if federal employees are underpaid

Do federal employees make more or less than people with similar jobs in the private sector? It's a question often asked, often answered, and never settled.

Do federal employees make more or less than people with similar jobs in the private sector? It’s a question often asked, often answered, and never settled. The latest effort comes from the Congressional Budget Office, which looked at the question using 2022 wage data. It found federal pay and benefits superior for those with high school diplomas or less education. But the private sector paid better for those with doctorates or professional degrees. For an evaluation, the Federal Drive with Tom Temin spoke with the staff vice president at the National Active and Retired Federal Employees Association, John Hatton.

Interview Transcript: 

John Hatton Well, I think it’s an update from its previous study, and it does show what a lot of people already kind of expect with regard to what you said, where if you have less education, the pay can be a little bit better in the federal government, a lot of that is due to robust benefits that may not exist in the private sector for individuals with that level of education. But when you get higher up the food chain with higher levels of education, you’re not getting quite 401K contributions based on that higher salary. And so, if you really want to make it rich, the federal government’s not the way to go. But if you’re looking for a secure job with benefits, it certainly is.

Tom Temin Yeah. So, there’s no real justification necessarily for some fundamental reform of federal pay necessarily in this. I mean, they’re almost equal for people with master’s degrees. Pay is slightly better in the federal sector. If you have just a bachelor’s degree.

John Hatton I would say this is one way to measure the differences between private sector and federal jobs. And so, this takes a kind of human capital approach. And so, what are the average pay for people with these characteristics? You know, another argument is the Federal Salary Council looks at similar jobs. So, job to job comparisons and that finds a wage gap is that federal pay is 27% less. Now that’s comparison to the CBO which is it’s 10% less on the wage level. The CBO report does take into account benefits, and it evens out a little bit more. So, for the bachelor’s degree, it’s about even right now finds 5% more on the federal side when you take into account benefits. So, it does depend on how you look at it. I think there still is some justifications for increasing pay to make some of the jobs more competitive. I think it’s, you know, on the lower end of the education spectrum, it’s the justification for those levels of pay is that people should have a living wage and they shouldn’t have secure benefits. And so, you know, the argument there is to make the private sector paying benefits better through government policy, not to cut down the federal sector.

Tom Temin Right. And even within a given professional level job. Sarah, I don’t know, something goofy like a college English professor. Well, that’s going to vary widely depending on what college you’re at, in what region or say you’re in a state attorney or even a criminal attorney, you know, some kind of a criminal defense attorney. Well, in Washington, you’re going to make $1,000 an hour, maybe somewhere out in the hustings. You’re not going to make so much money.

John Hatton Right? Yeah. There’s a large degree of variability, even within these averages. And I think the CBO report is aiming to provide some guidance, I guess, to federal policymakers, particularly in Congress, about what to do with federal pay as they make US pay rates from year to year. That’s often deferred to the president, but they can do so in the appropriations process. It does provide some I think it provides an interesting additional piece of information that combined with that federal salary, Council data starts to show you a picture that can be useful for deciding what policies to pursue, but that’s also based on your personal views on should private sector pay be higher? Should you know, what benefits should people have generally and the like? So, I do think it’s a good piece of information to utilize.

Tom Temin It’s pretty hard to match the federal benefits package. Well, the CBO study says that the private sector has a better benefits package. I’m not so sure that’s the case across the board. I mean.

John Hatton Generally speaking, I think the federal benefits there are better now when you get up to the even with higher education levels, though, they’re saying that they’re about even right or even private sector slightly better. And I think that’s in part due to profit sharing options for people. I think that’s due to the fact that if you’re getting a percentage of your pay into a 401 K and you make higher wages to begin with, and that’s going to be a higher amount. So yes, you get a FERs annuity with a salary of 100,000. But you’re going to get a higher for one K contribution if your salary 150,000. So that may be more valuable. So, I think it’s due to that it’s that underlying wage difference. And a lot of times those benefits are a percentage of those wages.

Tom Temin We are speaking with John Hatton, staff vice president at the National Active and Retired Federal Employees Association. NARFE. And let’s switch to the topic of the Postal Service health benefit. Long time coming. Final rule out now. Anything further to be learned here?

John Hatton There’s not really. Major changes in the final rule compared to what the interim rule was, and the interim rule didn’t have that many surprises, in my opinion, because the statute was very clear and there wasn’t a lot of flexibility for OPM in those regulations on the kind of the key issues in my mind. So, one of the things they noted here is that they planning to have rates out in September. They may not have all the details of coverage in December. That’s relevant because there’s a special enrollment period going on right now for postal and militants who have not previously enrolled in Medicare and want a second bite at the Apple and not have these late enrollment fees that started April 1st, it goes to the end of September. So, I think it’ll be helpful for you to have some additional information in September on these premiums, where they’re making the decision to take Medicare. That said that decision could probably be made based on kind of what existing coverage is in PHP, because these PHP plans are going to be parallel plans to the PHP plans for people.

Tom Temin Right. So, it’s a fait accompli at this point. It’s just a matter of who wants to enroll. And there you go.

John Hatton Right. Everybody’s going to have to enroll. If you’re a postal employee or a postal student, you’re going to be moving to the Postal Service health benefits program. That’s a subset of plans within the federal employee Health Benefits program. But they’re going to be parallel plan. So, if you have Blue Cross Blue Shield, which a large majority of people do have, there will be a postal service Blue Cross Blue Shield plan. The same for NLC, WGU and the other large nationwide plans. So, I think a lot of people are very confused about what’s coming. They’re probably concerned about what’s happening, about their benefits. I think the changes will be less significant than that underlying fear would reflect, and we’re learning more information day by day, week by week on this. OPM did reveal a list of conditionally approved carriers. So, they confirm what we kind of had suspected for so long about all those plans offering the same coverage. This rule and the statute require that the coverage needs to be equivalent in terms of benefits and cost sharing for plans and a PHP and equivalent plan in the postal plan. So, if you’re in Blue Cross Blue Shield standard will be a Blue Cross, Blue Shield standard or postal, which will have the same benefits and caution.

Tom Temin All right. So, the benefits are in the mail you might say. And finally, you did listen in on the latest hearing a few weeks ago now on the windfall elimination provision. Government pension offset GPO question reform repeal. What can we expect, if anything, do you think at this point legislatively.

John Hatton Our hope is that the Ways and Means Committee takes further action through a markup to advance some type of legislation? I think what the hearing indicated was that through the witnesses that the Republican majority selected, that they’re looking at more of a reform approach. All those witnesses said, yes, there are problems with the windfall elimination provision and the government pension offset, but we think there’s a reason they exist, but they can be fixed through some type of reform efforts. And so, I think that’s what the majority is looking at. Whether the minority would be on board with their solution is unclear at this point what the timing would be of further action. And the actual likelihood is also still unclear. But they’re discussing it. I think they’re real conversations going on within ways. It means this isn’t just playacting through this process. I think they’re really taking a look.

Tom Temin Who knows, maybe they’ll even branch over to the issue of Social Security itself, which, you know, well.

John Hatton Actually, the hearing touched on that a lot. I would say after the hearing was the two sides arguing about larger Social Security form, what they needed to do instead of focusing on weapon GPO. But they did touch on weapon GPO. I think there is a consensus, clearly in Congress, that these are problems reflected in the amount of co-sponsors for repeal. But there’s also concerns about the cost of the repeal and maintaining some of the policy rationales for those provisions as well.

Tom Temin Well, in the long run, they’ll do what they do best to cover Social Security and every other state pension plan, all of which are actuarial failures and that is borrowed to cover them instead of reforming them. That’s just my pessimistic view.

John Hatton I think they’ll figure out a solution to prevent people from having budget cuts in 20. Now it’s now 2035, but I think they’ll do that in 2034 or 2035. They’re going to be forced into that type of action where they have to make the hard decisions. And I think it’s hard to see them doing that too far in advance.

Tom Temin Yeah, I’m only going to be 80 at that point, so let’s hope so John. John Hatton is staff vice president of the National Active and Retired Federal Employees Association. NARFE, thank you so much.

John Hatton Thank you for having me.

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