With both a government shutdown and a potential default looming this fall, Congress and the White House are gearing up for another round of budget negotiations. In searching for ways to save, both sides should take a close look at federal-employee benefits.
Federal employees receive greater compensation than comparably skilled private-sector workers. Reducing federal compensation to market levels should therefore have only a minimal effect on recruitment and retention of qualified workers. It would save money without a significant reduction in services.
But what is the best way to pursue reform? After James Sherk, Andrew Biggs, and I began calling attention to the federal-pay problem back in 2010, lawmakers responded by denying federal workers a cost-of-living increase for three straight years. I remain ambivalent about these so-called pay “freezes.” (“Freeze” is a misnomer, since federal employees still earned regular step increases and merit-based raises during that time.) While the “freeze” certainly saves money, it’s a blunt instrument that doesn’t reform the structure of the compensation system in a meaningful way.