COMPENSATION

April 8, 2010


FEDERAL COMPENSATION

REFERENCES:  Cato Institute, Social Security Administration,   US Inflation Calculator,  InflationData.com, US Bureau of Economic Data

I was listening to XM radio last night and heard a very interesting segment on compensation for federal employees.  The announcer was definitely “overwrought” that most federal employees were making more than employees in the private sector for comparable work performed.   This guy was really bent out of shape and felt the situation was, at best, intolerable and would bring down this country if left to continue.  Thinking that he might be correct, I thought I would take a look.   The CATO Institute has two very interesting charts that show what is happening and what has happened over the years.  Let’s take a look at the first.    Please keep in mind that this is for federal workers and not state employees.

Private vs Federal

Private vs Federal

I was very surprised to see the remarkable disparity in pay scales for federal workers as compared to workers in the private sector.  As you can see, in 2004, federal workers were making approximately 48.2 % more than non-government employees.  A huge difference!   Again, please keep in mind that the comparison is for comparable work performed.  This is also represented by the following bar chart:

Bar Chart--Private vs Federal

Between 1950 and 1990 the federal advantage rose from 19 to 51% but since 1990, federal wages have soared reaching 93% by 2004.  Pay inflation has been fueled by routine adjustments that move workers into higher salary brackets regardless of performance, and by jobs that are redefined upward into higher pay ranges. The federal civilian workforce has become an elite island of secure and highly-paid workers, separated from the ocean of private-sector American workers who must compete in today’s dynamic economy. [ CATO INSTITUTE ]  There are currently 1.9million federal employees so we are taking about some serious money.  Serious money!!!!  

OK, let’s take a look at the annual inflation rates to see if we really should get angry with our government friends.  I’m thinking that some, if not most, of the added salaries are due to the inflation rate for our country.                             

As you can see from the chart below, the annual inflation is considerably less than the annual improvement in government salaries.   As a matter of fact, the inflation rate dropped in 2009.

Inflation Rate

 There is another indicator that we should be aware of, the cost of living index for social security recipients.  Look at this one.

COLA

You will notice that for the last ten (10) years there has not been a COLA above 5%, with the exception of 2008 and that was only 5.8%.

I might mention that there will NOT be a COLA for 2010 and some say for the next three years.  Inflation is almost flat so no need for increases.   IS THAT REALLY THE CASE?  Been to the grocery store lately?  Ever see a movie and had to buy your own ticket?  How about increasing toll booth costs?  Are the deductibles for your extended medical coverage going up?  I think so.  In addition to this comparison, studies typically look at just wages and don’t consider the superior benefits paid by the government. Federal workers receive health benefits, a pension plan with inflation protection, and a retirement savings plan with a very generous match. (By contrast, 40 percent of private-sector workers do not have access to an employer retirement plat all.)   More and more, smaller companies cannot afford health insurance for their employees much less retirement 401Ks.  Federal workers typically have generous holiday and vacation schedules, flexible work hours, training options, incentive awards, excessive disability benefits, flexible spending accounts, union protections, and usually a more relaxed pace of work than private works. ( Ever been to a post office! )  Perhaps the most important benefit of federal work is the extreme job security. The rate of “involuntary separations” (layoffs and firings) in the federal workforce is one-quarter the rate in the private sector.  Just 1 in 5,000 federal nondefense workers is fired for poor performance each year.  All these federal advantages and benefits suggest that, in comparable jobs, federal wages should be lower than private-sector wages. A market indicator of the adequacy of federal pay is the quit rate.   Nobody quits!

Would you not LOVE a job in which you could not be dismissed?  Never fired!  Staying on and on in perpetuity regardless of job performance.  Never have to hustle (that much).  OK, so maybe they are overpaid.     Our trend right now is to add more and more federal workers to “take care of us”.  There probably will come a time when everyone will be a federal worker, 90 % taxation rate or maybe we just turn our paychecks over to the government and they “dole out” what they think we need to live on.

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