Cost-of-Labor Pains
Federal pay raises are determined by the cost of labor, which often has increased more than the cost of living.
When President Bush called for a 2.2 percent raise for both the military and civilian federal employees in his 2007 budget, influential House Government Reform Committee Chairman Tom Davis, R-Va. praised his proposal.
"This will be the first time in many years that Davis and the Washington-area delegation will not have to wage a battle in Congress to protect pay parity, the belief that our federal workers should be treated equally in the annual cost-of-living pay raises," the congressman's office said in a press release.
Well, not exactly.
Federal employees don't receive cost-of-living increases; they receive annual increases that are tied to the cost of labor. The Federal Salary Council, which determines locality pay in each city, has made that point abundantly clear. As long as the labor is cheap, it makes no difference if inflation is eating away your wages.
That doesn't stop lawmakers with large federal constituencies and federal employee groups from opining on the gap between annual raises and cost-of-living increases.
The 2.2 percent raise is "grossly insufficient to cover health insurance premiums, the additional cost of gas and heating oil -- in other words, energy costs -- and the cost of living in this area," Rep. James Moran, D-Va., told Government Executive.
So how does the yearly federal pay raise stack up against the cost-of-living? Fairly well over the past five years, it turns out.
For example, look at federal retirees, who do receive yearly cost-of-living increases based on the Consumer Price Index for urban wage earners. The index, a common measure of inflation, is compiled by the Labor Department.
For 2006, retirees are receiving more than employees: 4.1 percent compared to 3.1 percent. But for the previous four years, it tips the other way.
Inflation was 2.7 percent in 2005, while employees garnered a 3.5 percent raise. In 2004, inflation ran at 2.1 percent and employees received a 4.1 percent hike. In 2003, inflation dropped to 1.4 percent, but employees got a 4.1 percent raise. In 2002, inflation was calculated at 2.6 percent and employees received a 4.6 percent raise.
Will 2007 bring a higher rate of inflation than the president's proposed 2.2 percent raise? The most recent data from the Labor Department show that from December 2004 to December 2005, inflation rose 3.4 percent. If the 2.2 percent figure sticks, then employees could be feeling cost-of-labor pains for the second year in a row.
How does the federal pay raise stack up against the private sector? Again, employees fared well over the last five years, according to a survey of 1,056 companies performed by Hewitt Associates, a human resources consulting firm.
In 2006, nonexecutive, salaried, professional employees are receiving an average 3.6 percent salary increase. In 2005, it was also 3.6 percent. The increase averaged 3.4 percent in 2004, while the 2003 and 2002 figures were 3.4 percent and 3.6 percent, respectively.
That means in 2005 and 2006, federal employees received slightly less than their industry counterparts, and in the three previous years, they received slightly more.
Cost of living versus cost of labor is an important distinction to understand. Increases in compensation or benefits based on one of the indexes are not necessarily a better deal than those based on the other -- for the government or for employees.