November 13, 2013

Discretionary SpendingOption 24

Multiple Budget Functions

Reduce the Annual Across-the-Board Adjustment for Federal Civilian Employees’ Pay

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Spending                        
  Budget authority 0 -0.8 -1.9 -3.0 -4.3 -5.6 -7.1 -8.6 -10.2 -11.9 -9.9 -53.3
  Outlays 0 -0.7 -1.8 -3.0 -4.2 -5.6 -7.0 -8.5 -10.1 -11.8 -9.8 -52.8

Note: This option would take effect in January 2015. About one-fifth of the savings would be reductions in intragovernmental payments and thus would not reduce the deficit.

Under the Federal Employees Pay Comparability Act of 1990 (FEPCA), most federal civilian employees receive a pay adjustment each January. As specified by that law, the size of the adjustment is set at the annual rate of increase of the employment cost index (ECI) for wages and salaries minus 0.5 percentage points. The across-the-board increase as spelled out under FEPCA, however, does not always occur. For example, the President can limit the size of the increase if he determines that a national emergency exists or that serious economic conditions call for such action. (Similarly, the Congress can authorize an adjustment that differs from the one sought by the President.) Lawmakers enacted legislation forgoing across-the-board adjustments for federal civilian employees for 2011, 2012, and 2013.

Under this option, the annual across-the-board increase that would be expected to occur under FEPCA would be reduced by 0.5 percentage points each year from 2015 through 2023. Under the assumption that appropriations were reduced by a commensurate amount, federal outlays would be reduced by $53 billion from 2015 through 2023, the Congressional Budget Office estimates.

One rationale for this option is that it would significantly decrease the costs of operating government agencies without diminishing the services they provide. Moreover, compensation for federal civilian employees makes up roughly 15 percent of federal discretionary spending, and it is difficult to attain a significant reduction in that category of spending without constraining personnel costs. In addition, such a change would signal that the federal government and its workers were sharing in the sacrifices that many beneficiaries of federal programs have made or will have to make to help reduce the deficit.

An argument against this option is that it could make it more difficult for the federal government to recruit qualified employees, and that effect might be pronounced for federal agencies that require workers with advanced degrees and professional skills. Recent research suggests that although federal workers with less education are paid more than private-sector workers in comparable occupations, federal workers with professional and advanced degrees are paid less than their private-sector counterparts. Thus, smaller across-the-board increases in federal pay would bring federal and private pay closer to parity for less educated workers but widen the gap between federal and private-sector workers in jobs that require more education. For federal employees who are eligible to retire but have not done so, such an action also could reduce the incentive to continue working. If a significant number of those workers decided to retire as a result of smaller increases in pay, increased retirement costs could offset some of the payroll savings produced by the policy change. (Such increases in mandatory spending are not included in the estimates shown here.)