Impacts of the Federal Pay Debate

by | Dec 7, 2015

Last Updated April 1, 2024
How federal pay rates affect FERS Disability and OWCP workers compensation

Federal pay, whether federal workers are overpaid or underpaid, has been a hot debate in the national news circuit. On November 20th, Mac Zimmerman contributed an op-ed to the Wall Street Journal entitled “The Sweet Gig of Being a Bureaucrat,” which cited an article by Cato Institute economist, Chris Edwards, claiming federal workers make $1.78 for every dollar earned in the private sector. In contrast, the non-partisan Federal Salary Council reached a different conclusion, reporting that federal employees are underpaid by 35 percent on average.

So which is true? Do federal workers make more or less than their private sector counterparts?

Evidence for both sides of the argument contain fallacies. The report written by Edwards has come under scrutiny for being biased, and failing to account for the fact that the majority of federal workers are located near Washington D.C., where cost of living expenses are some of the highest in the country. The federal sector is also a predominantly white-collar workforce which generally requires more education. According to a report by the Congressional Budget Office, 51 percent of federal workers have at least a bachelor’s degree, compared to 31 percent in the private sector.

Critics of the Federal Salary Council’s report claim it’s inaccurate because it only considers federal employee wages and doesn’t account for additional benefits. For example, few employees in the private sector have access to a 401(k) retirement plan and a pension.

Why Federal Pay Matters

FERS Disability Retirement and the High-Three

Federal pay rates are a critical factor when calculating FERS disability retirement annuity. The amount you receive as a FERS disability recipient is determined by your high-three salary rate, which is the average of any three consecutive years of federal service in which you earned your highest salary. For most federal workers, this is based off of the average salary of the final three years of service. Some, however, earned more during previous years of service, in which case the high-three salary is calculated based on those preceding years.

For FERS federal disability retirement, your annuity rate will be 60 percent of your high-three salary for the first year, and then 40 percent from the second year until your 62nd birthday, when you can start withdrawing from your pension.

OWCP Workers’ Compensation: Wage-Loss Reimbursement

One of the primary benefits associated with federal workers’ compensation is wage-loss reimbursement, which is based off of the federal employee’s weekly pay rate. OWCP workers’ compensation claimants can receive wage loss reimbursement for the time missed at work due to their injury or medical condition. If the federal worker has dependents, their workers’ compensation wage-loss reimbursement  payments will be 75 percent of their weekly pay rate, and if they do not have dependents, they will  receive 66 ⅔ percent.

Since public opinion often fuels policy decisions made by the government, the perception of how federal employee pay rates compare to the private sector may be significant in determining the fate of federal worker salaries.

A Slow Rebound From a Three-Year Federal Pay Freeze

While the federal workforce generally receives a yearly pay increase of 1.1 percent to account for cost-of-living adjustments, the 2008 financial crisis caused a three year pay freeze for federal employees.

Recently, President Obama announced a locality pay increase for the 2016 fiscal year, which will be the first since 2010. Though the locality pay adjustments are relatively small, averaging at 0.3 percent, it will be a boost to the 1 percent increase in base pay for 2016.

American Federation of Government Employees National President J. David Cox Sr. issued a statement applauding the President for the locality pay adjustment, and called on Congress to provide a more meaningful pay increase for next year.

His statement reads:

“Congress must build on this momentum and provide all federal employees with a meaningful pay raise next year so the government can begin to close the widening pay gap between employees in the federal and private sectors, which now stands at 35%.”

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