“Inflation is a very dangerous thing—for the economy and for stability,” Prof. John T. Addison, a labor economist with the University of South Carolina, told Government Executive.

“Inflation is a very dangerous thing—for the economy and for stability,” Prof. John T. Addison, a labor economist with the University of South Carolina, told Government Executive. Andriy Onufriyenko/Getty Images

Federal Managers and Recruiters, Take Note: Salaries May Stay Way Behind Inflation's Spiral

Inflation could stymie federal agencies’ efforts to recruit new employees and hold on to existing ones.

From 2017 to 2021, feds got pay bumps that, for most, stayed slightly behind inflation that averaged around 3% each year—adding up to a small but sizeable loss in buying power over the period. Not surprisingly, in our current era of much higher inflation feds are looking at more of the same, only worse. Congressional Democrats have proposed a 4.7% salary hike plus another 4% maximum locality pay boost for 2024 – hefty figures for sure, but still behind the cumulative effect of inflation. And, as long documented in studies, feds have been falling behind a percentage or two most years over the much longer haul—and stumble even further behind when compared with the private sector.

The effect of these trends on federal agencies’ efforts to recruit new employees and retain existing ones is to make those tasks harder. 

Still, even in an economic environment hostile to recruiting feds, there are some notable and, for federal agencies, welcome countertrends. In recent months, to cope with lowered revenues (or as some critics say, simply to cut labor costs) tech companies have significantly reduced their workforces—companies like PayPal, Google and perhaps most strikingly Facebook (whose parent Meta, has cut about 13% of its total numbers.) And federal agencies, as widely reported, appear to be scooping up a number of such folks to fill thousands of long-open STEM and tech posts, and hope for more.

The force behind most of the current turmoil? Inflation. We all know the story. We just don’t know how and when it will end. 

It goes something like this: The American economy was rolling along, until—in the second quarter of 2020—a massive wave of illness and lockdowns brought on by COVID-19 slammed the brakes, threatening global recession. Then, by mid-2021, as extremely low interest rates, enhanced unemployment pay and other programs that had prevented collapse began to overheat already-recovering markets, higher prices crept in. Spiking costs were stubbornly locked in place by the time political Washington and the Federal Reserve (which has raised interest rates 8 times in just over a year) finally reacted, struggling—as they still are—to bring price growth back to sustainable lows. 

And although inflation has dropped by a third since its peak—possibly a testament to solid policy moves, even if they came late—it remains high, at rates not seen in decades. The latest figure is 6.4%, released Feb. 14. So, it isn’t surprising that salaries remain a crucial and moving target for job seekers. 

A Federal Reserve poll done at the end of last year, for example, showed that for already-employed workers, the salary level desired to take a new job is more than $3,000 higher than last year—as a percentage, that jump represents an eight-year high. Officials noted that upward salary pressure is especially strong among younger workers, highlighting that although inflation has eased somewhat the labor market remains particularly hot. 

“Inflation, in terms of its effect on salaries, simply represents a reduction in the real wage for people,” Prof. John T. Addison, a labor economist with the University of South Carolina, told Government Executive. “Then, what follows is people lobbying, trying to get their real wages restored.”

“But in the meantime, their salaries in buying power terms have declined more,” Addison said. “That's the nub of the problem where salaries are concerned.”  

That is certainly how polls over the last year or so—in surveys from The New York Times to FinanceBuzz—peg worker sentiment. 

Sean Snaith, an economist at the University of Central Florida’s Center for Economic Forecasting, added that many younger people may not know the classic term for this is “wage-price spiral.”  

“The actual numerical amount you get in your paycheck doesn't matter, right?” Snaith told Government Executive. “What matters is what those dollars can purchase. We see salaries rising, but the cost of living goes up faster. More money in your wallet, fewer goods and services you can buy. Salaries go up but they don’t keep up.” 

Heightened efforts to keep up with inflation are also fueling a movement for “salary transparency” in jobs, with new laws now in effect in Washington state and California (though, by way of the GS-system, disclosure of a discernable salary range has long been a feature of most federal job postings). 

So, this is where we are so far on the current inflation and the Fed’s efforts to combat it, and some of the likely spillover effects so far on labor markets and pay, including for the federal workforce. 

“Inflation is a very dangerous thing—for the economy and for stability,” Addison said. “It must be tackled. But I think it’s going to be a little more difficult this time. My suspicion is that the Fed’s interest rate rises so far are not really working—or not as expected. It’s a rather stubborn problem—so, soon we might see not quarter percent rises but half a percent ones, and maybe a recession.” 

“We think the Fed is going to have to go higher with the interest rates,” Snaith said. “But we’re thinking this will end up in a ‘pasta-bowl’ recession, not a deep ‘salad-bowl’-shaped recession. We don’t think it will be a deep 2008-2009 kind of deal. Instead, just a gradual slowdown and then a gradual exit from the shallow recession.” 

“As far as the federal government keeping up with salary inflation meantime, I don’t think they’re going to have an easy time of it—unless magically federal agencies suddenly are nimble on salaries,” Snaith said.

Fed Chairman Jay Powell, for his part, this week offered clues in testimony before the Senate Banking Committee about next steps for inflation—and salary—control. He said that the “ultimate level of interest rates is likely to be higher than previously anticipated.” And that supports our economists’ prediction that the government is likely to push back harder on our still red-hot economy, with more risk of some kind of recession, to get wage and price growth down. 

Though there are many predictions, no one, including able economists, knows for sure where this story goes next: whether a long-feared sharp recession, or a shallow recession—or just a slow drop in inflation toward a so-called “soft landing.” This last possibly would, of course, be good for average workers—especially fed workers, since historically federal compensation never keeps pace with high inflation or spiraling salary contests.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.