Originally Published on August 2006
As the Bush Administration makes the turn to its final two years, it has overseen the most significant increase in recent history in the largely hidden workforce of contractors and grantees who work for the federal government. Fueled by nearly $400 billion in contracts in 2005 and another $100 billion in grants, the true size of the federal government now stands at 14.6 million employees, which includes civil servants, postal workers, military personnel, contractors, and grantees. The total is up from 12.1 million in 2002, and just 11 million in 1999.
More than half of the 2005 total is composed of contract employees, which accounted for an estimated 7.6 million jobs. This number is up nearly 2.5 million since 2002, the last year that the true size of the federal workforce was measured, and the most recent year for which complete data are available. And it is up 3.2 million since 1999. As such, the growth in contract employees between 2002 and 2005 marks both the single largest absolute and percentage increase since 1990 at the end of the cold war, which produced sharp declines in the number of civilian, military, and contactor employees during the 1990s. All of the increase in contract employees is due to increased spending at the Department of Defense. [The trend is tracked in the table attached to this fact-sheet.]
There are many good reasons to use contracts and grants to procure goods and services, not the least of which is that the federal government is technically prohibited from competing with private businesses for commercially available work. The federal government often uses contractors and grantees to provide talent it cannot recruit, specialized services it cannot produce, competition it cannot generate among its own organizations, and equipment that it cannot and should not build itself.
Moreover, the federal government no longer needs to produce basic goods and services such as soil testing, weather forecasting, satellite technology, basic scientific research, or even dentures, which the Department of Veterans Affairs produced until the 1950s. Although it still provides a great deal of medical research through the National Institutes of Health, its grants to private and public universities have produced some of the most important breakthroughs in creating new vaccines, reducing disease, and speeding new technologies such as the internet to the market.
As such, contractors and grantees are often vital in converting government’s greatest endeavors into lasting achievements. The federal government may have administered the Marshall Plan, but private contractors did most of the work. The federal government may have imagined the interstate highway system, but private contractors and grantees did most of the construction. And the federal government may have implemented the Clean Water Act, but state and local government employees did much of the monitoring and enforcement, while grantees built the water treatment plans.
But there is also one service the federal government must produce through its contracts and grants. It must achieve and maintain basic accountability for what goes right and wrong whomever produces the goods and services. It hardly matters who delivers basic services such as the launch of a space shuttle if the federal hierarchy is so thick with needless management that it cannot monitor quality control before and during flight, nor does it matter who makes the body armor if the federal procurement workforce is so thinly stretched that it cannot make sure the armor works. Finally, it hardly matters who produces the goods and services as long as the federal government is honest with the public about the true cost of delivering on the promises it makes.
The federal government does not use contracts and grants just to procure needed goods and services, however. It also uses contracts, grants, and mandates to state and local governments to hide its true size, thereby creating the illusion that it is smaller than it actually is, and give its departments and agencies much greater flexibility in hiring labor, thereby creating the illusion that the civil service system is somehow working effectively. Not only does the federal government’s largely hidden workforce of contractors and grantees encourage the public into believing that it truly can get more for less, it diffuses accountability about just who might be in charge of the launch-pad camera that failed to provide a precise image of the damage to the shuttle Columbia’s left wing.
Measuring the True Size of Government
It is difficult to know precisely how many contractors, grantees, and state and local government employees actually work for the federal government, however. Contractors and grantees do not keep count of their employees, in part because doing so would allow the federal government and scholars like me to estimate actual labor costs, and state and local governments make no effort whatsoever to quantify the number of hours their employees spend administering federal mandates.
The best one can do is estimate the number of contractors and grantees by using the input/output model of the U.S. economy that is constantly updated by the U.S. Bureau of Economic Analysis. Basic on actual transactions involving the purchase of specific goods and services, such an estimate assigns a specific Standard Industrial Code that describes both what is being purchased and how much labor is actually involved in the production of a good or service. Building a battle tank would involve much more material than labor, for example, while providing building security or management consulting would involve much more labor than material.
The information needed to actually produce the estimated true size of government is contained in two federal databases:
- The Federal Procurement Data System, which tracks contract transactions, and
- The Federal Assistance Awards Data System, which tracks grants.
Absent a hard headcount, which private contractors and grantees are loathe to provide, these estimates provide an anchor more for measuring the change in the true size of government than an absolutely precise count of actual employees. Unfortunately, such estimates are only available back to the mid-1980s when the Federal Procurement Data System was first established.
Moreover, it is impossible to estimate the number of state and local mandate employees, though I did try to do so in 1997 by asking state and local employees to estimate the time they spent working under federal mandates, whether funded or unfunded. The resulting numbers, while provocative at more than 4 million employees in 1996, are simply too soft to use in the following discussion. Much as they complain about the impacts of unfunded mandates on budget and personnel, states and localities simply do not know themselves how much those mandates actually cost.
Readers should note that the following discussion reflects a good deal of rounding of figures, in part because rounding makes the text easier to read, but also because it reduces the perceived precision of the estimates. Although the civil service, postal worker, and military personnel figures come from federal sources, including historical tables of the U.S. budget, the contract and grant estimates are just that, estimates, and should be treated as such. The trends matter far more than the estimates, and the trends suggest that the true size of government is growing rapidly.
The 1990 Baseline
Eagle Eye’s 1990 estimates provide a mark against which to measure the changing true size of government. After all, 1990 expenditures reflect the last decisions of the year before the end of the cold war, and show the true size of government after the end of one of the largest defense build-ups since World War II. As Appendix G shows, this build-up helped create a true size of government of more than 12.6 million employees, including more than 2.2 million civil servants, 820,000 postal workers, 2.1 million uniformed military personnel, 5.1 million contractors, and 2.4 million grantees. As of 1990, there were roughly three-and-a-half contractors and grantees for every federal civil servant.
A true size of 12.6 million employees is no small number, but was already significantly smaller than 1984, when it reached just under 14 million. The number of contract-generated employees had fallen by 400,000 by 1990, with much of the decline in Defense and Energy department contracts. Although the total number of military personnel remained virtually unchanged over the six years, the end of the cold war had already produced the start of a peace dividend that would increase by 1993.
By 1993, the true size of the federal government showed the rise of the post-cold war peace dividend. Although there were small cuts in the number of contract-generated and civil service jobs between 1990 and 1993, the number of military personnel fell by almost 500,000 jobs, while the Defense Department’s civilian workforce fell by 100,000. All totaled, the true size of government was 12 million jobs, including 2.2 million civil servants, 820,000 postal workers, 1.7 million military personnel, 4.9 million contractors, and 2.2 million grantees. At the time, there were barely three contractors and grantees for every federal civil servant.
In a very real sense, the declining number of military personnel had become a leading indicator of future cuts in the contract-generated workforce. Fewer soldiers needed fewer weapons, which meant lower contract spending. Reducing the size of the armed services can be done almost immediately at the recruiting stations, while contracts usually run their course. Moreover, a significant draw-down in military personnel requires at least some increased contracting out just to study the impacts and handle the eventual base closings they produce. They also put pressure on Congress and the president to help state and local governments convert military bases to civilian use, which became a growth industry in contracts and grants during the early 1990s.
However, the grant-generated workforce did not decline during the same period, as federal grants continued to hold steady. Unlike total procurement spending, which fell by $60 billion, grant spending increased ever-so-slightly as the federal government continued to pursue endeavors such as reducing disease and strengthening the highway system through its grants. Although grant-generated employment is particularly difficult to estimate given the lack of hard transactions to track, grant employment appears to have increased during the period by roughly 200,000 jobs.
By 1999, the true size of government was at its smallest level since the end of the cold war. When all the numbers are added up, the true size of the federal workforce was approximately 11 million, including 1.8 million civil servants, 870,000 postal workers, 1.4 million military personnel, 4.4 million contractors, and 2.5 million grantees. Nevertheless, the ratio of contractors and grantees actually increased—the civil service was shrinking much faster than the hidden workforce. By 1999, there were nearly four contractors and grantees for every federal civil servant.
Even in 1999, however, the pressure to increase the true size of government was beginning to show. Nine of every ten jobs that had been cut from the true size of government between 1993 and 1999 had come from the Defense Department during the continued post-cold war downsizing, including another large cut in military personnel, a nearly 250,000 cut in civilian employment, and a sharp decline in contract-generated jobs. These cuts were echoed, albeit in smaller numbers, at the Department of Energy and National Aeronautics and Space Administration, both of which experienced significant growth during the cold war.
This peace dividend gave Congress and the president the room to invest at least some of the savings in a growing domestic workforce that included 220,000 new jobs at the Transportation Department grew by 220,000 jobs, 117,000 at Justice, 90,000 at the General Services Administration, and 59,000 at Treasury. Whereas the Defense, Energy, and the National Aeronautics and Space Administration cut the true size of government by 1.3 million jobs between 1993 and 1999, the rest of government added back more than 300,000 of the total.
All totaled, the peace dividend had sliced nearly 1.6 million jobs from the true size of government, a substantial achievement, but an illusion nonetheless. Although the decline was widely heralded within Democratic circles as proof positive that they could cut government, it was actually 100,000 employees larger when Defense, Energy, and the National Aeronautics and Space Administration were removed from the calculations.
Moreover, there were plenty of harbingers of increased growth across the federal government, including at Defense. Even as the department was already preparing for another round of base closings that will take effect from 2006-2010, its procurement budget began increasing in 1999 as the Clinton administration began to replace aging weapons systems. Modernization spending alone accounted for a nearly $20 billion increase in procurement from 1999-2002, while increases in domestic departments such as Education and Health and Human Services pushed their contract- and grant-generated workforces steadily higher.
These gains did not protect the civil service, which had dropped from nearly 2.2 million employees in 1993 to 1.8 million in 1999. Nor did the increase in the true size of the domestic workforce prevent Bill Clinton from declaring the end of the era of big government in his 1996 State of the Union Address. Although most of the decline involved little more than post-cold war downsizing, including a total cut of nearly 400,000 jobs in the Defense civil service, the peace dividend nonetheless created the illusion of large federal job cuts, and helped the Clinton administration eventually meet and exceed its reinventing government promise of a dramatic reduction in total civil-service employment.
With federal employment budgets tight, problems recruiting and retaining talented employees rising, and frustration about hyper-reform and needless paperwork growing, the federal government clearly started viewing the hidden workforce as a much more pliable option for procuring labor, especially in hard-to-recruit positions such as information technology, science and engineering, program evaluation, and management analysis.
The most important question at the time was not how the federal government got so big, but whether it had the human capital to sustain high performance and meet increasing public demands. It could have been that a 12 million workforce was still too small for the federal mission, or that a civil service of just 1.8 million employees was still too big for political comfort, or even that the federal government desperately needed more procurement workers to oversee the consolidation of contractors into mega-providers of key federal services such as the day-to-day operation of the space shuttle program.
By 2002, most of my predictions about the pressure to grow had come true as the true size of government reached its highest level since before the end of the Cold War. All totaled, the true size of government hit 12.1 million in October, 2002, including 1.8 million civil servants, 810,000 postal workers, 1.5 military personnel, 5.2 million contractors, and 2.7 million grantees. With contract- and grant-generated jobs up by nearly a million, and the civil service down by just 2,000, there were more than four contractors and grantees for every civil servant.
Although the 2002 true size of government was still smaller than it had been at the end of the cold war in 1990, the era of the end of big government was clearly over.
During the three short years between 1999 and 2002, the federal government added back more than half of the headcount savings produced by the end of the Cold War. All totaled, the end of the cold war produced a reduction of more than 2 million jobs, allowing the federal government to add 550,000 non-Defense jobs back into government during the last two years of the Clinton administration and first two years of the new Bush administration. In addition, increased defense spending produced roughly 500,000 new Defense contract jobs.
At least some of this growth was sparked by new defense spending in the Clinton administration’s final two budgets, but most of the 1.1 million new jobs came during the Bush administration’s first two years. Although there is no way to know just how much of the money reflected the war on terrorism, the greatest growth occurred at the Defense, Health and Human Services, Justice, State, and Treasury departments, where the war was being fought.
The number of contract workers would have been even higher, and the civil service cuts even deeper, if the federal government’s 60,000 new baggage and passenger jobs had been contracted out at the Transportation Security Administration. Even as the new agency began hiring the new civil servants, it created new contracts for virtually every aspect of the employment process, including hiring, training, and payroll management, which increased the number of contract-generated jobs. The agency’s $554 million recruitment contract went to a consortium of California government agencies, while the $224 million pay and personnel management contract went to Accenture, a private consulting firm.
When coupled with the hard headcounts from federal sources, the 2002 estimates produced five insights about the true size of government.
- The true size of government was growing again. Between 1999 and 2002, the true size of government grew by 1.1 million jobs to 12.1 million in 2002. Although military personnel and postal employment inched up during the period, almost all of the growth has occurred in two categories: contract and grant-generated jobs.
- The federal workforce remained a very large presence in the labor force, and was growing larger. By 2002, the true size of the federal government was equal if not larger than the nonprofit sector, which employed as many as 11 million Americans, and was two-thirds as large as state and local government, which employed another 18 million. Assuming that as many as one in five state and local employees were working on federal mandates, funded and unfunded, the federal government had the largest public presence in the national labor force. And that presence could only have increased with the annual testing requirements in the No Child Left Behind Act and the added personnel associated with terrorism alerts.
- The federal civil service was not the source of the 1999-2002 growth. Indeed, civil service employment only increased by 16,000 jobs during the period, which means that it actually fell when the Transportation Security jobs are subtracted out of the total. During the same period contract-generated jobs went up by more than 700,000 jobs and grant-generated jobs by 333,000.
- The peace dividend was half gone by 2002. What had gone down dramatically with the end of the cold war had increased by more than 600,000 jobs between 1999 and 2002, largely driven by new investments at the departments of Defense, in part because of modernization, and in part because of the war on terrorism.
- The true size of government grew across government, however, not just at Defense. Although some might attribute most of the 1999-2002 growth to the new war in terrorism and increased defense spending with the war in Afghanistan, the growth actually occurred in all areas of government. But for Energy and the National Aeronautics and Space Administration, both of which continued to lose jobs as the demand for nuclear weapons and aeronautics development ebbed, and declines a handful of domestic agencies such as Housing and Urban Development, which clearly fell out of favor in the new Bush Administration, virtually all other major departments and agencies gained jobs.
These trends suggested that the true size of government was headed back to its pre-1990 highs. Although there is no way of knowing whether the numbers were even higher in the 1960s and 1970s, it seems quite reasonable to suggest that the true size of government peaked before the end of the cold war, fell dramatically in the six years after, then started rising again. This peace dividend was not invested in the civil service, however, which continued to operate under de facto ceilings that allowed congressional and presidential candidates to vow no growth in government.
Preliminary estimates of the true size of government in 2005 confirm the continued growth of the true size of government, especially at the Defense Department. By 2005, the true size of government reached 14.6 million employees, including 1.9 million civil servants, 770,000 postal workers, 1.44 million military personnel, 7.6 million contractors, and 2.9 million grantees. With the vast expansion in the contract-generated workforce, which reflected a nearly $50 billion increase in contract spending between 2004 and 2005 alone, there were five-and-a-half contractors and grantees for every federal civil servant, up from just three-and-a-half at the end of the cold war.
Readers are warned that these estimates are softer than my earlier numbers because of a shift in how the federal government tracks contract expenditures. Departments and agencies are now required to use an entirely new coding system for reporting transactions, which has led to delays and mistakes in the final data set. As a result, about $75 billion of the $375 billion in 2005 contract expenditures could not be tracked by the exact destination or purchase, which meant that the dollars could not be used in estimating contract-generated jobs without assigning them to other expenditures on a proportional basis.
Using this proportional approach to estimate the jobs created by the rest of the $3.1 billion, the true size of the federal government in 2005 exceeded its 1990 mark by more than 2 million jobs, and its 1999 mark by 3.5 million. Government has been growing very fast, indeed.
This time, almost all of the growth can be attributed from the war on terrorism, which boosted Defense spending for both goods and services systems and covered the continued cost of the wars in Afghanistan and Iraq. There was almost nothing the Defense Department did not buy—it paid for new airbases abroad, the purchasing of body armor, tank treads, ammunition, meals, security, and trailers in Iraq, research and development in the fight against terrorism, and management consulting for internal reform.
Between 2002 and 2005, the number of Defense contract employees jumped from 3.4 million to 5.2 million, with a mix of jobs in both “hard contracts” for material and “soft contracts” for services. The rest of the hidden workforce held steady at roughly 2.9 million grantees, while civil service employment inched up and postal employment fell.
Twenty years after the Reagan administration’s defense build-up, the true size of government had come full circle. By 2005, the post-cold war peace dividend was completely gone. Like 1984, most of the contract-generated jobs were at Defense, where the war on terrorism had replaced the cold war. But unlike 1984, there is no sign that the growth trends will abate anytime soon. Although expenditures for the war in Iraq will eventually decline, the war on terrorism will continue to exert pressure for growth far into the future.
A deeper analysis of the estimates suggests two other trends of note.
- First, although most non-defense departments and agencies lost small numbers of contract-generated jobs between 2002 and 2005, while several others gained. The Department of Homeland Security was the most noticeable because all of its contract-generated jobs were new to the hidden workforce. The department produced 140,000 contract jobs during the period, most due to the war on terrorism.
- Second, most of the increases in contract employment involved service jobs. Whereas the number of manufacturing jobs remained virtually unchanged between 2002 and 2005 at roughly 2.2 million, mostly in defense industries, the number of service jobs increased by almost 2.5 million, up from 3 million in 2002 to more than 5.4 million in 2005. The increase suggests that many of the new jobs involved the outright purchase of labor, whether to build roads, manage parks and forests, or manage public outreach, technology services, financial systems, and personnel. For example, the Transportation Security Administration uses contracts to manage virtually all aspects of the hiring, training, and payroll process for its baggage and passenger screeners. All of these jobs could have been placed in the civil service, which is how almost these services are provided in other departments and agencies.
The new numbers on the true size of government raise the obvious question of whether the federal government has somehow grown too big. My answer is that the better question is whether the civil service has remained too small. Although many of the contracts and grants involve perfectly legitimate transactions, some also involve the continued effort to keep the civil service small. Just as one cannot know how big the civil service would be without so many contracts and grants, one cannot know how small the hidden workforce would be if federal employment was allowed to rise to meet the growing federal mission.
But all jobs are not created equal. Although there is little hard evidence on the true cost of the hidden workforce, one can easily imagine that Congress and the president are paying a premium for their insistence on a relatively small civil service. Federal employees certainly feel the pinch in their concerns about the lack of enough employees to do their jobs well. One can also argue that the lack of hard headcounts from the hidden workforce prevent the kind of labor-cost comparisons that might drive some jobs back into the civil service.
The case is also easily made in the thickening of government, the appointments process, and the mostly unsuccessful hyper-reform. Contracts and grants may disguise the true size of government, but they also promise political comfort and a measure of responsiveness, albeit a responsiveness that is often extremely difficult to monitor and sometimes comes at a cost in eventual dependencies that weaken the salutary effects of what is often heralded as a competitive process. In turn, unfunded mandates may be the most tempting tool of all for hiding the true size of government—they simply pass the cost of implementing laws such as the No Child Left Behind Act to state and local governments, while reserving the rewards for members of Congress and the president.
Paul C. Light, Douglas Dillon Senior Fellow, is founding director of the Center for the Public Service at the Brookings Institution.
Americans on the Public DoleThe largest-ever federal payroll will hit 2.15 million people in 2010 and 2.11 million in 2011, but the true size of the federal government is much larger: it is estimated to be 15 million or more. To be more specific, by 2005, the true size of government reached 14.6 million employees, including 1.9 million civil servants, 770,000 postal workers, 1.5 million active duty military and 848,000 in reserve, 7.6 million contractors, and 2.9 million grantees. In comparison, state and local government employs another 18 million (the nonprofit sector employs as many as 11 million Americans).
As of April 2009, the size of the U.S. workforce (employed and unemployed) was about 156 million (154,731,000 in the civilian workforce and approximately 1,500,000 in the military workforce). Therefore, almost 10 percent of the U.S. workforce is employed by the federal government and almost 12 percent is employed by state or local government, for a total of 22% of the U.S. workforce employed by local, state and federal government combined.
In addition, about 1 in 5 Americans receive Social Security or a government pension. And about 19 million others get food stamps, and two million get subsidized housing. For these categories, dependents as well as the direct recipients of government income are counted.
Slightly over half of all Americans -- 52.6 percent -- now receive significant income from government programs. That's up from 49.4 percent in 2000 and far above the 28.3 percent of Americans in 1950. If the trend continues, the percentage could rise within ten years to pass 55 percent, where it stood in 1980 on the eve of President's Reagan's move to scale back the size of government. That two-decade shrink-the-government trend now appears over, if for no other reason than demographics. The aging baby-boomer generation is poised to receive big payments from Social Security and government healthcare programs.
May 18, 2010
Federal, state and local governments in the US currently employ approximately 22.6 million people. That is just over 17% of the total nonfarm payroll. In the recent Great Recession, the government did very little to adjust its labor expense.
On a seasonally adjusted basis, private industry employment peaked in January 2008 and fell by 7.3% before reaching it trough in December 2009. Government employment, on the other hand, continued to grow until April 2009. It subsequently bottomed in February 2010, but only ended up losing 1.0% from its high. Both are now up approximately 0.5% from their lows.
Government also continued to grow compensation throughout the down turn. And, it did so at rates consistently higher than private industry. According to the BLS Labor Cost Index for Compensation, since 2005 state and local governments grew year over year compensation between 0.3 and 1.6 percentage points faster than private industry in each and every quarter.
There is obviously a lot more to solving the federal, state, and local government deficit challenges than managing headcount and compensation, but at this point every bit counts.The U.S. employment report released today showed that average hourly earnings fell 2 cents to $22.53 in June, and the average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month... The pace of hiring signals it will take years for the world’s largest economy to recover the more than 8 million jobs lost during the recession that began in December 2007... Economists surveyed forecast the jobless rate, which fell to the lowest level since July 2009, would rise to 9.8 percent last month. The decline in June reflected a 652,000 decrease in the size of the labor force... The number of unemployed in June was 14.6 million. Of those, the largest number, or 3.46 million, were between the ages of 25 and 34. The jobless aged 45 to 54 numbered 2.72 million, followed by 35 to 44 year-olds at 2.62 million. - Bob Willis, U.S. Economy: Payrolls Grew Less Than Forecast in June, Bloomberg, July 2, 2010
By Stephen Dinan, The Washington Times
February 2, 2010
The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history.
The Obama administration says the government will grow to 2.15 million employees this year, topping 2 million for the first time since President Clinton declared that "the era of big government is over" and joined forces with a Republican-led Congress in the 1990s to pare back the federal work force.
Most of the increases are on the civilian side, which will grow by 153,000 workers, to 1.43 million people, in fiscal 2010.
The expansion could provide more ammunition to those arguing that the government is trying to do too much under President Obama.
"I'm shocked that the 'tea party' hasn't focused on it yet, and the Obama administration only has a thin sliver of time to deal more directly with it, I believe," said Paul C. Light, who studies the federal bureaucracy as a senior fellow at the Brookings Institution and a professor at New York University. "When you talk about big government, you're talking about a big employer."The new figures are contained in the budget that Mr. Obama sent Monday to Congress.
Mr. Obama says the civilian work force will drop by 80,000 next year, mostly because of a reduction in U.S. census workers added in 2010 but then dropped in 2011 after the national population count is finished. That still leaves 1.35 million civilian federal employees on the payroll in 2011.
From 1981 through 2008, the civilian work force remained at about 1.1 million to 1.2 million, with a low of 1.07 million in 1986 and a high of more than 1.2 million in 1993 and in 2008. In 2009, the number jumped to 1.28 million.
Including both the civilian and defense sectors, the federal government will employ 2.15 million people in 2010 and 2.11 million in 2011, excluding Postal Service workers.
The administration says 79 percent of the increases in recent years are from departments related to the war on terrorism: Justice, Defense, Homeland Security, State and Veterans Affairs.
After years of decline at the end of the Cold War, the Defense Department is restaffing. Mr. Obama estimated that the Pentagon will have 720,000 employees this year and 757,000 employees next year -- up from a low of 649,000 in 2003.
The data also show that the Department of Homeland Security will grow by 7,000 a year in 2010 and 2011, and the Veterans Affairs Department will grow by 12,000 in 2010 and an additional 4,000 in 2011.
Peter R. Orszag, Mr. Obama's budget director, also said more people have been hired to oversee outside contracts.
"Over the past eight or nine years, those contracts have doubled in size. The acquisition work force has stayed constant. It's not too hard to figure out that oversight of those contracts has not kept pace with what it should be," Mr. Orszag said.Even as the total number of federal employees rises, the ratio of employees to Americans has declined steadily, from one employee for every 78 residents in 1953 to one employee for every 110 residents in 1988 to one employee for every 155 residents in 2008.
The federal work force is older than the private-sector work force, which Mr. Light said raises the possibility of reducing the total number through retirements.
About 31 percent of the private work force is 50 or older, while 46 percent of the federal work force is 50 or older.
Mr. Obama is in a situation similar to that of Mr. Clinton, who took office when the budget deficit was at a record high and government bureaucracy was expanding, even though the Pentagon was shedding workers with the end of the Cold War.
Mr. Clinton in 1996 declared that "the era of big government is over" and took steps to work with Congress to control spending and cut the work force, which already had been trending lower.
As he left office in 2000, Mr. Clinton boasted that his administration had helped cut 377,000 government jobs, leaving the smallest civilian federal work force since 1960.
Mr. Obama, though, appears to be accepting a larger federal work force.
The administration has called for federal workers to get a 1.4 percent pay raise next year, which Mr. Orszag said, "frankly, I think to a lot of Americans, sounds pretty good."
The American Federation of Government Employees, the union that represents many government workers, said it was combing through the budget and did not have a comment.
What recession? Government workers are probably wondering what all the fuss is about. The private sector has lost 2.5 million jobs since the Obama administration's stimulus bill was passed, while the public sector -- federal, state, and local government combined -- has added 416,000 jobs over the same period.
Although 85 percent of Americans work for private employers, the administration's own Recovery Act database admits that four out of five jobs "created or saved" were in government. Likewise, average pay has risen in the federal, state, and local government, while private sector wages have fallen. More jobs, better security, and rising wages -- it's boom time in the public sector.
Ordinary Americans, along with a small group of elected officials from both parties, have finally been stirred to action. New Jersey's Republican governor Chris Christie is a leader in taking on public sector unions over performance, pay, and pensions, and California governor Arnold Schwarzenegger has cajoled public employee unions into accepting pension reductions. Even some Democratic appointees -- such as Washington, D.C., public schools chancellor Michelle Rhee, who recently took the unprecedented step of firing 241 underperforming teachers -- seem to have had enough.
Despite this, defenders of public sector workers continue to argue that they are underpaid. Union representative Colleen Kelley, in a recent letter to the Wall Street Journal, cited federal statistics claiming that federal workers are paid 22 percent less than private sector employees doing similar jobs. Likewise, recent studies from liberal think tanks claim state and local employees receive significantly lower pay and benefits than private workers. Until these arguments are addressed, fully and directly, the group of policy makers with the mettle to tackle public sector pay will remain small.
A raw comparison between the wages of federal and private workers suggests there is no contest at all. The typical federal employee received a salary of more than $79,000 in 2008, with benefits raising total annual compensation to more than $119,000. The typical private sector worker, by contrast, received pay of around $50,000 and total compensation of just under $60,000. Moreover, USA Today recently reported that federal employees receive higher average salaries than private sector workers in 180 of 216 comparable occupations. These numbers seem to speak for themselves.
Defenders of federal pay are quick to point out, however, that federal employees are more skilled than the typical worker in the private sector -- in other words, they deserve more money. As OMB director Peter Orszag argued,
"A comparison of federal and private sector pay...is misleading because the employees hired by the federal government often have higher levels of education than their counterparts in the private sector."
Orszag is right: we do need to account for skill differences in the federal workforce, which is older, more educated, and more white-collar than workers in the private sector. But the question then becomes whether these differences are enough to account for the huge disparity in pay. Using the Census Bureau's Current Population Survey, which includes earnings and demographic data on tens of thousands of workers spread across the public and private sectors, we can control for differences in education, work experience, race, gender, marital status, immigration status, region of residence, and several other variables. After doing so, we can see whether the pay gap between federal and private sector workers remains.
This "human capital" approach to explaining wage variation, the overwhelming preference of labor economists, assumes that in competitive labor markets individuals with the same productivity will command similar salaries, even if they work different jobs. The human capital method is commonly used by economists in other contexts -- such as determining whether union members receive higher pay than similarly qualified non-union members, or whether women and minorities receive lower pay than comparable white males.
Even after including the full range of control variables in our own analysis, we found that federal workers continue to earn a pay premium of around 12 percent over private workers. In other words, someone in the private sector has to work an average of 13.5 months to earn what an equally skilled federal worker makes in 12 months. This is not a novel result by any means. Academic economists have been studying federal/private pay disparities since the 1970s, and they generally find a premium in the range of 10 to 20 percent.
Though the data are less precise, benefits like retirement contributions and health insurance rates are also more generous for federal employees. We have calculated that the annual overpayment of salary and benefits to federal workers comes to more than $14,000 per worker, totaling nearly $40 billion per year.
This does not mean everyone in the federal government should get an automatic pay cut. In fact, our data suggest the brightest people -- research scientists, for example -- receive no premium and may even suffer a penalty when they work for the government. If the federal government rewarded skills the way the private sector does, wages would adjust in different ways for different workers. Overall, however, total compensation would go down by around 12 percent, taxpayers would save tens of billions of dollars each year, and the federal government would regain some much-needed fiscal credibility.
BUT WHERE DO CLAIMS THAT federal workers are underpaid come from? From the President's Pay Agent -- not an actual person, but an obscure function headed by the Secretary of Labor and the directors of the Office of Management and Budget and the Office of Personnel Management. Relying heavily on the recommendations of the Federal Salary Council, a panel of labor union representatives, the Pay Agent submits an annual report to the president suggesting how much to increase federal pay. The 2009 report claims, remarkably, that federal workers are underpaid by more than 22 percent relative to the private sector.
Before we discuss the reasons for the large discrepancy between the Pay Agent's results and ours, consider how implausible the 22 percent figure actually is. Why would millions of federal employees accept such a low wage if they could earn thousands more in the private sector? A desire to serve the public can go only so far. High-ranking government officials are no doubt attracted to the power and prestige of their jobs, but what about the vast number of unremarkable paper-pushing jobs the government offers? What is so attractive about these positions that justifies taking 78 cents on the dollar?
Barring an almost unbelievable level of civic-mindedness on the part of federal employees, either federal positions offer non-wage compensation that outweighs a 22 percent salary gap -- in which case these workers aren't truly underpaid -- or the 22 percent salary gap figure is wrong to begin with. We think both are true.
The Pay Agent's figure is inaccurate because of the method it uses to compare pay in each sector. Rather than using skills like education and experience to identify productivity, as most economists recommend, the Pay Agent relies on a survey of job descriptions in various localities. For example, suppose the federal government employs an accountant in Chicago. In order to determine how much to pay him, the government would look at the job descriptions of private sector accountants in the Chicago area. It would try to find the subset of accountants who seem to have the same responsibilities as the government hire, then take the average salary in that set.
Though it sounds reasonable enough, the process is highly subjective. Positions that seem "comparable" on paper could be much different in practice, and some federal jobs have no private sector counterparts. How much should an intelligence analyst be paid based on his job description? Most importantly, unlike the human capital approach, the Pay Agent cannot distinguish between high- and low-productivity workers in the same position. It is just assumed that a particular job description leads to a certain level of output.
That is a rather poor assumption, because government appears to systematically promote employees to higher positions than they could hold in the private sector. An individual who would serve as a junior accountant in the private sector, for example, might be a senior accountant for government. One study found that 77 percent of federal employees are at least one level of responsibility above that of comparable workers in the private sector. This means government positions may appear underpaid relative to comparable private sector occupations, but the individuals filling those positions could be overpaid relative to what they would earn outside of government. The Pay Agent's method is inherently oblivious to this problem.
Even the federal Pay Agent's own analysts have expressed strong reservations about the government's system for setting wages. The 2008 report states,
"We continue to have major methodological concerns about the underlying model for estimating pay gaps."Each report between 2001 and 2008 included some version of this warning. Curiously, the first report produced by the Obama administration omitted any mention of reform.
THE PAY AGENT'S FIGURES are even less believable when we consider just how popular government jobs are. At the beginning of this year, federal workers were only one-third as likely as private sector workers to quit their jobs, a difference that exists during good economic times as well as bad. Since perhaps the most common reason for quitting a job is to take another that offers some combination of better wages, benefits, and working conditions, the fact that federal workers don't jump ship implies there is usually no better deal out there. Government job postings also receive considerably more applications than private sector openings, again pointing to their attractiveness.
In 1988, economist Alan Krueger -- currently serving the Obama administration as chief economist at the U.S. Treasury Department -- examined the wages of two different groups of people who were laid off from their private sector jobs. One group took new jobs in the private sector, while the other group became federal employees. The latter group, unsurprisingly, made significantly more money after the job change than the former. These results, together with the evidence on quit rates, application quantity, and sheer gut-level plausibility, form a solid block of evidence supporting the findings of superior federal pay, benefits, and working conditions.
Comparisons for state and local government workers are more complicated, because here it is mainly benefits, not wages, that make government work attractive. John Schmitt of the left-leaning Center for Economic and Policy Research (CEPR) recently wrote,
"When state and local government employees are compared to private sector workers with similar characteristics, state and local workers actually earn less, on average, than their private sector counterparts."In contrast to the federal case, there are hard numbers to back up this claim-at least when the case is limited to wages.
While the human capital approach shows a 12 percent wage premium for federal government employees, it tends to show a pay penalty at the state and local level of 10 to 12 percent. It is not clear why state and local workers receive lower wages than federal employees -- competition among the states might play a role in keeping salaries in line -- but unions and liberal think tanks have seized on this finding to claim that state and local workers are undercompensated.
This conclusion does not survive scrutiny. For one thing, state and local employees are five times more likely to be covered by union contracts than private sector employees. Since union members predictably receive higher pay than non-union members, policies to allow collective bargaining by government employees are tantamount to decisions to raise pay. While some analysts would have you believe that state and local employees are paid just like private sector workers, the truth is that they are paid more like unionized private sector workers, which is a different kettle of fish.
Moreover, at both the state and local level, generous benefits are likely to more than make up for any salary gap, large or small. While studies by think tanks like the CEPR claim that benefit levels are comparable between state/local and private sector workers, they employ a serious methodological error.
The basic method of comparing benefits for public and private sector workers is simple: use data on what employers pay for each employee's fringe benefits, such as health insurance and pensions. In the private sector this method usually works fine. Employee benefits take the form of an up-front payment -- a matching contribution to a 401(k) account, for example -- not an IOU like a pension plan.
In the public sector, however, this approach can be quite misleading because a good portion of government employees' benefits come in the form of defined benefit pensions and retiree health coverage. These benefits are both highly generous and severely underfunded, which means that what government employers currently pay for these benefits significantly understates the benefits employees will become entitled to and must eventually collect.
Public sector pension plans reported unfunded liabilities of approximately $500 billion as of 2008. When measured by the more rigorous standards required for private pension plans, however, public pensions are underfunded by more than $3 trillion. Added to this is approximately $500 billion in unfunded obligations for generous retiree health benefits, which provide full coverage from the age of retirement through Medicare eligibility at 65, then supplemental coverage thereafter.
Unlike programs like Social Security, where underfunding can mean benefit cuts, accrued public sector pension benefits are in most states guaranteed either by law or by state constitutions. In other words, state government employees are eligible for $3.5 trillion more in benefits than labor compensation data would suggest, because these reflect only what employers do pay, not what they should pay if they are to meet their obligations. When the full value of pension and retiree health entitlements is included, total compensation for state and local employees rises by approximately 25 percent, putting these employees thousands of dollars ahead of their private sector counterparts.
EVEN LEAVING WAGES AND BENEFITS aside, the intangible perks of public employment -- automatic annual raises, flexible hours, generous paid vacation time -- provide significant added value. Then there is the near-certainty of not being fired. The annual rate of layoffs and firings in 2009 was 24 percent in the private sector but only 7 percent in state and federal government. Given that the average duration of unemployment in 2009 was more than 22 weeks -- and is even higher today -- this additional job security for public sector employees has an expected value of more than $8,000 for a typical federal employee. In practice, individuals would gladly pay even more for this insurance, since layoffs and firings tend to happen at the worst possible times -- when the economy is down and millions of other workers are looking for jobs.
The cost of public sector overcompensation goes beyond higher taxes. Economists Yann Algan, Pierre Cahuc, and Andre Zylberberg write in the Economic Policy Journal that,
On average, "creation of 100 public jobs may have eliminated about 150 private sector jobs, slightly decreased labor market participation, and increased by about 33 the number of unemployed workers."Their conclusion, drawn from data on 17 Organisation for Economic Co-operation and Development (OECD) countries over the period 1960 to 2000, is that attractive pay and conditions in public employment make private sector positions less attractive to job seekers. Given what we have seen regarding compensation at all levels of government, that is easy to believe.
Moreover, a number of studies, including by the OECD and the International Monetary Fund, have shown that countries that balance their budgets through reductions in social transfer programs and the government wage bill -- that is, the number of government workers and the generosity of their pay -- are more successful in reducing government debt than those that raise taxes. The reason may be that, because government pay is among the toughest of expenditures to reduce, governments that succeed in cutting it establish credibility with the public and build confidence with financial markets.
For perhaps the first time, a widespread swath of ordinary Americans appear ready to seriously reconsider the pay, benefits, and job security granted to public employees. With private sector workers and their families bearing the brunt of the recession, the existence of a seemingly protected class of government employees has generated a response that goes well beyond the inefficient use of taxpayer dollars to a sense of fundamental unfairness. But like government largesse in other forms, excessive public pay has some tenacious supporters. Public sector unions, for one, appreciate the extra cash, and even non-union government employees tend to have disproportionate political power. The question of public sector pay will be decided by how Americans vote and, perhaps more importantly, by the courage of public officials after the votes are counted.By Chris Edwards, The Heartland Institute
April 1, 2006
The nation's 16 million state and local government workers form a large, growing, and well-compensated class in society. State and local workers earned $36 per hour in wages and benefits in 2005, on average, compared to $24 per hour for U.S. private-sector workers, according to the U.S. Bureau of Labor Statistics' Employer Costs for Employee Compensation Summary, published December 9, 2005.
Government workers also have more than four times the level of union representation. Unions represented 9 percent of private-sector workers and more than 40 percent of state and local workers, according to the Bureau report.
Table 1 shows the number of state and local workers by budget area. The largest area is kindergarten to grade 12 schools. The number of school teachers and administrators climbed 22 percent between 1994 and 2004, even though public school enrollment grew just 9 percent during the period, according to the U.S. Bureau of the Census.
Another fast-growing area is public safety. Police, fire, corrections, and legal staffs have grown an average 21 percent in the past decade. One contributing factor has been the jump in state prison populations in recent years.
|Table 1. State and Local Government Employment|
|Judicial and legal||321,168||409,944||28%|
|Housing & development||123,173||114,281||-7%|
|Social insurance administration||93,890||89,557||-5%|
|Parks and recreation||239,605||262,815||10%|
|Source: U.S. Bureau of the Census. Full-time equivalents.|
State and local health bureaucracies have also grown as Medicaid spending has exploded. In health and other areas, the growth in bureaucracy has been fueled by growing regulatory paperwork that has accompanied expanded federal funding of state and local activities.
Some areas of the state and local bureaucracy, such as hospitals, have not grown. That may be due variously to budget reforms, a shift of work to the private sector, or other changes. In the case of public welfare, the number of state and local administrators has remained steady at about half a million. Meanwhile, the number of welfare recipients has fallen 66 percent since 1994 as a result of federal and state welfare reforms during the 1990s.
The size of state and local bureaucracies varies widely by state. Table 2 shows the number of government workers in each state as a share of employment in the state. Along with the District of Columbia, the largest bureaucracies are in Alaska and Wyoming--states that have an image of rugged individualism. Some of the other states with big bureaucracies also lean conservative in their politics, including Mississippi and Alabama.
Nevada has the smallest bureaucracy, with a state and local workforce only about half the relative size of Alaska's.
Numerous factors affect the size of state bureaucracies, including demographics, crime levels, and the differing propensity of states to contract out or privatize services such as prisons and solid waste collection.
Differences between states also reflect bureaucratic efficiency levels. For example, while high-bureaucracy D.C. and Louisiana have deep-seated problems of waste and corruption, low-bureaucracy New Hampshire is known for its more effective government. Some states, such as Alaska and New Mexico, have high levels of bureaucracy across many budget areas. Other states, such as Pennsylvania and Rhode Island, have consistently lower levels of bureaucracy.Chris Edwards (email@example.com) is director of tax policy studies at the Cato Institute. This article was adapted from "State Bureaucracy Update" in issue No. 29 of the Cato Institute's Tax & Budget Bulletin. Used with permission.
February 25, 2010
The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan.
By altering how it awards $500 billion in contracts each year, the government would disqualify more companies with labor, environmental or other violations and give an edge to companies that offer better levels of pay, health coverage, pensions and other benefits, the officials said.
Because nearly one in four workers is employed by companies that have contracts with the federal government, administration officials see the plan as a way to shape social policy and lift more families into the middle class. It would affect contracts like those awarded to make Army uniforms, clean federal buildings and mow lawns at military bases.
Although the details are still being worked out, the outline of the plan is drawing fierce opposition from business groups and Republican lawmakers. They see it as a gift to organized labor and say it would drive up costs for the government in the face of a $1.3 trillion budget deficit.
“I’m suspicious of what the end goals are,” said Ben Brubeck, director of labor and federal procurement for Associated Builders and Contractors, which represents 25,000 construction-related companies. “It’s pretty clear the agenda is to give big labor an advantage in federal contracts.”Critics also said the policy would put small businesses, many of which do not provide rich benefits, at a disadvantage. Furthermore, government officials would find it difficult to evaluate bidders using the new criteria and to determine whether one company’s compensation package should give it an edge, said Alan L. Chvotkin, executive vice president of the Professional Services Council, a coalition of 340 government contractors.
From his earliest days in office, President Obama has called for an overhaul of government procurement policy, citing the contracting scandals of the previous decade involving cost overruns and no-bid contracts.
“The president made it clear that he is committed to reforming government contracts to save taxpayers money while protecting workers and the environment,” a White House spokesman, Bill Burton, said. “The administration is currently gathering data and examining the best ways to do this.”Two of Mr. Obama’s allies — John Podesta, the Clinton administration chief of staff who headed the president’s transition team, and Andy Stern, president of the Service Employees International Union — have repeatedly pressed the president to use procurement policy to push up wages and benefits.
In testimony last year to the Office of Management and Budget, Mr. Podesta said that 400,000 workers employed under federal contracts — like cafeteria workers, security guards and landscaping workers at federal buildings — earn less than $22,000 a year, the federal poverty line for a family of four, assuming just one paycheck in a household.
“We have a president who is talking about bringing more people into the middle class,” Mr. Stern said. “The government should expect contractors to obey the law, and at the same time contractors should not be building a poverty economy, but should be trying to build a high-road economy.”The officials briefed on the plan said it was being developed by officials in the Office of Management and Budget, the White House Office of Legal Counsel, the Treasury, Justice and Labor Departments and the vice president’s Middle Class Task Force.
Even as business groups press the administration for more details, they are denouncing the plan, tentatively named the High Road Procurement Policy.
The Daily Caller, a conservative Web site, reported Feb. 4 that the plan would “heavily favor government contractors that implement policies designed by organized labor.”
Randel K. Johnson, senior vice president for labor at the United States Chamber of Commerce, called the plan a “warmed-over version” of President Bill Clinton’s regulations that sought to bar federal agencies from awarding contracts to companies with a record of breaking labor, environmental or consumer laws. President George W. Bush vacated those regulations soon after taking office.
“We strongly opposed the Clinton blacklist regulations,” Mr. Johnson said, “and this appears worse than that.”On Feb. 2, Senator Susan Collins of Maine and four other Republican senators sent a letter to Peter R. Orszag, director of the White House budget office, saying,
“We are concerned that the imposition of these requirements, during a time of significant economic turmoil in the private sector and tight federal budgets, could have serious, negative consequences, especially for our nation’s small businesses.”One signer was Tom Coburn, Republican of Oklahoma, who was one of the two main sponsors — the other was Senator Barack Obama — of a bill that sought to increase the transparency and accountability of federal contracting by requiring the government to create a data base of all federal contracts. President Bush signed it into law in 2007.
David Madland, director of the American Workers Project at the Center for American Progress, a liberal research group founded by Mr. Podesta, argues the new policy could lower government costs, instead of raising them.
Many low-wage employees of federal contractors receive Medicaid and food stamps, he said. Citing studies conducted by the Department of Housing and Urban Development and by academic researchers, he said that contractors that pay their employees well have greater productivity and reliability, while contractors with a record of labor law violations do shoddier construction work.
“This policy is good for workers, it’s good for taxpayers and it’s good for high-road businesses,” Mr. Madland said.He said that one study done by the state of Maryland found that after the state began requiring bidders to pay a living wage, the number of bidders per contract rose by a third on average. Some higher-wage companies said they began seeking government bids because the new policy leveled the playing field.
One federal official said the proposed policy would encourage procurement officers to favor companies with better compensation packages only if choosing them did not add substantially to contract costs. As an example, he said, if two companies each bid $10 million for a contract, and one had considerably better wages and pensions than the other, that company would be favored.
Some supporters of the new procurement policy — and even some opponents — say Mr. Obama could impose it through executive order. They assert that the president has broad powers to issue procurement regulations, just as President John Kennedy did in requiring federal contractors to have company-wide equal employment opportunity plans.
But some opponents argue that legislation would be needed because an executive order may collide with laws that require federal contractors to pay the prevailing regional wage for the type of work being done. The executive order, they fear, would call for higher wages.
Ever wondered where all of your tax money goes?
In a society where salaries are secrets nobody wants to reveal, it is refreshing to find websites that have a tell all approach when it comes to the salaries of federal employees.
If you are interested in finding out just how well (or not) a government job pays, all you have to do is get online and click away.
For a broad view:Why does it matter?
2010 Salary Tables and Related Information
For general salary ranges of particular job descriptions, check out this U.S. Office of Personnel Management website.
For an in-depth look:
Federal Employees 2008 search
Find federal salaries based on location, agency, or even name at this site. Jobs that relate to national security are excluded, but other positions are available.
Note that the database shows 2008 salaries. Federal pay for civilian employees increased 3.9% in 2009 and by 2% in 2010; and the proposed increase for 2011 is 1.4%.
There are a variety of reasons why you should be able to find out how much federal employees are making.
First of all, it is important to know how tax money is used. This doesn't mean that you, personally as a taxpayer, are paying these salaries. But as a taxpayer, you should find out how taxes are used.
Second, it helps to see the salary differences between the private companies and government jobs. When I first saw some of the federal salaries, I was shocked--I was certain that the private sector paid more. I was wrong.
The True Size of Government (January 1, 1999)
Expect lots of government layoffs at state, local level
Salary & Job Outlook for Feds (except postal workers)
Americans Suffer, While Government Workers Prosper
Most federal agencies expand staffs in 2011
Statistics on Public Sector Employment