A CBO report raises new questions about Biden’s 2% pay raise plan

A new report from the Congressional Budget Office found that a gap between the combined pay and benefits of federal workers and their private sector counterparts has nearly disappeared between 2015 and 2022, raising new questions about President Biden’s proposed 2% average pay raise for the federal workforce in 2025.

Federal policymakers generally rely on one of two reports comparing the compensation of federal and private sector workers. First is an annual analysis compiled by the Bureau of Labor Statistics for review by the Federal Salary Council, which compares only the wages of similar jobs, is the preferred citation of Democrats and federal employee unions.

CBO’s analysis, which is typically conducted every five years and is preferred by conservatives, compares “total compensation”—wages plus the cost of benefits like health care, paid leave and retirement—of federal and private sector employees with similar educational backgrounds. This model has traditionally concluded that the cost of federal employees’ pay and benefits is moderately higher than their counterparts in the private sector, although federal workers with master’s or professional degrees still tend to earn less.

The latest version of CBO’s report, which was released last month, covers only 2022, rather than the traditional 2015-2020 period, due to the economic upheaval caused by the COVID-19 pandemic. It found that the total compensation gap between federal and private sector jobs cratered between 2015 and 2022, falling from 17% in its last analysis to just 5%.

Since the report relies on 2022 data, it does not account for more recent pay adjustments, such as the 4.6% average pay raise in 2023 or the 5.2% pay raise in January. And it does not account for the up-to 30% pay raises experienced by Transportation Security Administration employees to bring their wages in line with the rest of the General Schedule pay system, which were not implemented until last July.

“By 2022, the extent to which federal pay exceeded private-sector pay for workers with less education had narrowed, and the pay of federal workers with more education had fallen further short of their counterparts in the private sector,” CBO wrote. “Those changes occurred because federal compensation grew less than private-sector compensation between those two periods. Federal compensation declined relative to private sector compensation primarily because across-the-board salary increases for federal employees that lawmakers enacted were smaller than wage growth in the private sector.”

Those reduced pay raises rippled into further reductions to the federal government’s costs associated with providing benefits, such as paid leave and retirement.

“Slower salary growth for federal workers held down growth in the cost of benefits because the costs of pensions, paid leave and legally required benefits are closely tied to salaries,” CBO wrote.

The gap between total compensation across each of CBO’s main educational cohorts moved in the direction of the private sector over the seven-year period. Federal employees with high school diplomas earned 40% more in pay and benefits than their private sector counterparts in 2022, down from 47% in 2015. Bachelor’s degree holders, who were found to have earned 21% more in total compensation in the previous study, only earned 5% more in 2022. And those with professional or doctorate degrees earned 22% less than their private sector counterparts in 2022, exacerbating what was an 18% deficit in 2015.

President Biden raised eyebrows when his fiscal 2025 budget proposal only included an average 2% raise for civilian federal employees in 2025, well below the previous two years’ record increases and short of the 4.5% proposed for military service members. At a House Oversight and Accountability Committee hearing last week, Rep. Gerry Connolly, D-Va., who has introduced legislation calling for an 8.7% average raise next year, pressed Office of Management and Budget Deputy Director for Management Jason Miller on the formulation of the pay raise plan.

“I have to admit that I was distressed to find out that this year, it looks like we’re going backwards instead of forward,” Connolly said. “Why did you propose only 2% for federal employees, when inflation is higher than that? And second, why have you in fact widened the gap between military and civilian compensation?”

“It has been important under the Biden administration that we are working to close the longstanding [pay] gap,” Miller said. “Our fiscal 2025 budget had to comply with fiscal responsibility acts, and we took that very seriously. We also wanted to make sure our pay policy decisions weren’t having negative impacts on near-term service levels. We’re currently several months into implementing the most recent increase, which is why we recommended the 2% pay increase as part of the fiscal 2025 budget.”

“I guess; when we looked at our analytics, there’s no way we could have gotten to 2%, and I hope we have an opportunity to dialogue about that,” Connolly said. “But I think that’s just a very inadequate number for hardworking federal employees.”