The Case for Federal Employee Compensation Reform

The Case for Federal Employee Compensation Reform
Ed Feulner
7-9-10

Growing up in Chicago, it seemed everyone knew the route to a safe, secure future: Get a government job. Such jobs offered lower pay but greater security; once on the payroll it was virtually impossible to get fired from a government job.

Well, that last part remains true -- red tape still makes it extremely difficult to get rid of a federal “civil servant,” even if that employee is no longer serving the public well (or at all). But in recent decades, the other half of the equation has changed. Now, federal employees make more -- much more -- than their private sector counterparts.

A recent survey by economists at The Heritage Foundation found that “the average federal employee earns $28.64 an hour compared to $18.27 an hour in the private sector.” That’s more than half-again as much.

Of course, it’s not always easy to compare federal jobs with private sector jobs. There are many federal jobs that don’t exist in the “real world,” (and many that probably shouldn’t exist at all). Still, the Heritage analysis uses two different methods to control for the differences, and finds that federal employees are comparatively overpaid.

And it’s not simply better pay. Federal workers also enjoy better benefits.

These include excellent coverage through the Federal Employees Health Benefit Program, which contributes 33 percent more toward health care costs than private-sector programs do. Federal workers also enjoy a defined-benefit pension program, something that’s almost unheard of these days in the private sector. Plus, federal employees can retire at age 56, take another job and still collect their full pension.

There’s one more benefit it’s impossible to put a price tag on: job security. “Civil service rules make it difficult to fire federal employees for bad performance once they pass their probationary period,” writes labor expert James Sherk. Probation usually lasts just a single year. Once hired, feds “keep their jobs unless their supervisor works through an arduous process of exhaustively documenting their performance and working through a complex appeal process,” Sherk notes.

And in these recessionary times, Uncle Sam’s about the only one doing much hiring. The federal government has added almost 200,000 jobs since the recession started, while private employers have pared some 8 million net jobs. Federal employees seem to have been protected from the recession.

Federal over-compensation is bad enough simply because we taxpayers are stuck with the bill. But our government is also sending the wrong message. Since it over-pays, it encourages people to work for it even though most federal jobs don’t contribute much to overall economic growth. “Overpaying government employees means less economic growth and fewer jobs for everyone else,” as Sherk writes.

None of this is to claim that all federal employees are overpaid. There are high-performing federal workers who earn less than they would in the private market. Still, lawmakers should begin to apply market principles to the federal payroll, a process that could save up to $47 billion each year -- enough to fund the Departments of Commerce, Interior or Energy.

First, Congress should get rid of the General Schedule, which rewards employees based on their length of service, and replace it with performance-based pay, which would encourage workers to excel.

The federal government should also hire private contractors. Rather than hire, for example, staff assistants who can advance through the ranks and eventually earn $80,000 per year, Washington should contract such jobs out. They’ll be done just as well, and at far less cost.

Congress should also pare back federal benefits to bring them in line with what private sector workers earn. This seems only fair, since it’s private workers who pay the taxes that fund government jobs.

Americans should expect our federal government to be efficient and effective. Reforming the way it pays civil servants would be a good first step.