CBO

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Measuring Differences

Between Federal and

Private Pay

1RYHPEHU 

The Congress of the United States ■ Congressional Budget Office 
Note

Cover photos (top to bottom) courtesy of the following: left-hand column—NASA Langley

Research Center, Congressional Budget Office, and USDA Natural Resources Conservation

Service (photo by Ron Nichols); middle column—National Institute of Standards and Technology (photo by Barry Gardner), National Institute of Standards and Technology (photo by

H. Mark Helfer), and Bureau of the Census; and right-hand column—NASA Langley Research

Center, National Institute of Standards and Technology (photo by Barry Gardner), and USDA

Natural Resources Conservation Service (photo by Bob Nichols).
Preface

7his paper—which was prepared at the request of the Senate Committee on

Governmental Affairs, Subcommittee on Oversight of Government Management,

Restructuring, and the District of Columbia—continues the Congressional Budget

Office’s (CBO’s) series of assessments of how the federal government’s compensation

practices compare with practices in the private sector. The current report, which incorporates data on nonfederal salaries from a commercial source, reviews federal pay

setting and examines differences between federal and private salaries. In keeping with

CBO’s mandate to provide impartial analysis, the report makes no recommendations.

R. Mark Musell of CBO’s Microeconomic and Financial Studies Division wrote the

report under the supervision of Arlene Holen, Roger Hitchner, and Marvin Phaup. Paul

Cullinan, Deborah Clay-Mendez, William Gainer, and Deborah Lucas, all of CBO,

provided helpful comments. The author also notes with appreciation the assistance of

Allen Hearne, Office of Personnel Management; former CBO research assistant Kirk

Kerr; Rosslyn Kleeman, George Washington University; and Bill Wiatrowski, Bureau

of Labor Statistics.

Leah Mazade edited the report, and Christine Bogusz proofread it. Kathryn Winstead

prepared the report for publication, Lenny Skutnik produced the printed copies, and

Annette Kalicki prepared the electronic versions for CBO’s Web site.

Dan L. Crippen

Director

November 2002

This study and other CBO publications

are available at CBO’s Web site:

www.cbo.gov

CONTENTS

Summary and Introduction 1

Concerns About the Federal Pay System 1

The Comparisons in CBO’s Analysis 4

Pay Comparisons Based on Commercial Surveys 5

How Jobs Were Compared 6

Results 7

Conclusion 9

Table

1. Jobs Covered by CBO’s Analysis 7

Figures

1. Estimated Distribution of Federal/Private Salary

Differences for Selected Professional and

Administrative Occupations, 2000 8

2. Estimated Distribution of Federal/Private Salary

Differences for Selected Technical and Clerical

Occupations, 2000 9

Boxes

1. Federal Pay Setting and Raises 2

2. Concerns About and Proposed Changes to

Federal Pay Surveys 3

3. Geographic Areas Covered by CBO’s Analysis 6

1. See Congressional Budget Office, Comparing Federal Employee Benefits with Those in the Private Sector

(August 1998). Other CBO reports on federal pay include Comparing Federal Salaries with Those in

the Private Sector (July 1997) and Comparing the Pay and Benefits of Federal and Nonfederal Executives

(November 1999).

Summary and Introduction

The Federal Employees Pay Comparability Act of 1990 (FEPCA) calls for the pay of most

federal white-collar employees to rise gradually to the estimated level of nonfederal pay

in their local area (see Box 1). Under the law, the Bureau of Labor Statistics (BLS) surveys

nonfederal organizations to determine the salaries they pay, and the Office of Personnel

Management (OPM) uses that information to compare federal and nonfederal salaries

and calculate pay raises for federal workers. The federal pay system and those pay comparisons have provoked much controversy. This analysis by the Congressional Budget

Office (CBO) presents the results of the pay comparisons that it conducted, which show

that federal salaries for selected professional and administrative jobs—but not for technical and clerical employment—lag well behind salaries offered by private firms. Those

findings reinforce concerns about the federal pay system raised by OPM and others—

specifically, that the system allows no variation in pay raises by occupation.

Concerns About the Federal Pay System

The federal government has not put into place the full raises called for under FEPCA.

That decision stems in part from their cost—if fully implemented, the law would require

raises averaging about 20 percent—and in part from questions about the federal pay process. Some observers have argued that the law’s focus on achieving comparability only

in terms of pay is too narrow. Other analysts have criticized the way the government conducts the pay comparisons that the law requires. In addition, some people have argued

that the system fails to provide enough flexibility in setting white-collar workers’ pay.

The Pay System’s Narrow Focus. Controversy surrounds the federal system’s exclusive

focus on the comparability of pay, given that federal employees are also entitled to nonpay

forms of compensation, such as paid vacations, retirement, and health insurance. In

earlier work on the personnel system, CBO found that the value of federal benefits often

exceeds the value of private firms’ benefits by as much as 7 percent of pay, offsetting some

of the federal disadvantage in salaries.1 Other analysts also note that the current pay

system fails to consider benefits that federal employees may have, such as job security,

that are not associated with compensation.

Problems with Pay Comparisons. Federal/nonfederal comparisons, even as estimates of

differences in pay alone, have raised many concerns. Among other things, some observers

question the government’s practice of comparing federal salaries with salaries for nonfederal jobs that match only descriptions of federal employment—and that may not

reflect the actual work performed by federal employees. The continuing use of nonfederal

salary data from the mid-1990s has also drawn fire; the government is revising its pay

surveys, but the process is lengthy and at times has been controversial (see Box 2).
2 MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY

%R[ 

Federal Pay Setting and Raises

Under the Federal Employees Pay Comparability Act of 1990 (FEPCA), pay for federal

white-collar employees was intended to rise to within 5 percent of nonfederal salaries

in local areas. Percentage raises are granted in two parts in January of each year. One

part, which is the same for all employees, is based on changes in the employment cost

index, a measure of salary growth in the private sector. The other part, which is known

as the “locality” raise and is of most relevance to this Congressional Budget Office

analysis, is based on comparisons of federal and nonfederal salaries in local areas. Thus,

raises for federal employees may vary from one locale to another depending on how

federal and nonfederal pay compares in each place. The Office of Personnel Management makes the comparisons by using nonfederal salary data—which cover both

private firms and state and local governments—that the Bureau of Labor Statistics

collects through surveys. The comparisons cover only selected jobs and areas.

In broad outline, locality raises are computed as follows:

 First, the government uses data from salary surveys to compute a single weightedaverage nonfederal salary for each local area.

 Second, it computes the amount needed to raise the area’s average federal salary

to within 5 percent of the average nonfederal salary.

 Third, it computes the percentage amount needed to close a part of the difference

between the average federal and average nonfederal salaries according to a schedule

provided in FEPCA.

Long-standing questions about the pay system and about the cost of pay raises have

led the federal government to provide salary increases that fall below the full amount

called for in FEPCA. Nevertheless, comparability remains a statutory goal of federal

pay policy, and each year, the government computes the increases necessary to achieve

that goal overall.
MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY 3

%R[ 

Concerns About and Proposed Changes to Federal Pay Surveys

The salary surveys of nonfederal jobs that the Bureau of Labor Statistics (BLS) has conducted for many years raise a number of difficult issues:1

 The Number and Choice of Jobs. Many people have argued that past federal surveys covered too few jobs. They also maintain that too many of the jobs surveyed were those

that are well compensated in the private sector.

 Job Matching. Observers have questioned the accuracy of the descriptions of federal

work that BLS used in its surveys to find matching nonfederal jobs. Some people

believe that the descriptions overstated the duties and responsibilities of federal

positions and therefore led to incorrect estimates of federal/nonfederal pay differences.

 Data Issues. BLS’s surveys in many cases produced data that met the agency’s statistical

standards for only a portion of the jobs covered. Debate over the years about the

bureau’s survey process has focused both on the standards and on how to make the

surveys more productive so as to fill in missing data. Recently, concerns about pay

comparisons have increased because some salary information is so far out of date.

(Current comparisons use projections based on nonfederal salaries in the mid-1990s.)

The government is presently engaged in a lengthy (and often controversial) revision of

its pay surveys. The changes that have been proposed prompt many of the same questions

that earlier surveys have raised. Partly in response to budget constraints, BLS has proposed

using data for pay comparisons that are collected as part of ongoing general surveys of

white-collar pay; currently, those data support a variety of purposes, including BLS’s computing of the employment cost index. But the bureau’s sampling methods in those surveys

collect information from any job in an establishment, not just jobs that match a description

from a predetermined list. As a result, much of the current debate about the new approach

centers on how to adapt those surveys to the needs of federal pay setting. Of particular

concern are how to ensure that the surveys produce enough data on jobs to allow

meaningful pay comparisons, how to fill in missing data, and how to accurately match

federal and nonfederal jobs so that comparisons are appropriate.2

1. For more information on concerns about comparability and pay comparisons, see Congressional

Budget Office, Issues in Determining Pay Raises for Federal White-Collar Employees (May 1995); and

Congressional Research Service, memorandum to the Honorable Steny H. Hoyer, “Implementing

the Federal Employees Pay Comparability Act” (March 15, 2001).

2. For more information on the proposed changes, see Office of Personnel Management and the

President’s Pay Agent, Report on Improving General Schedule Locality Pay Surveys (May 2001).
4 MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY

2. The House Committee on Appropriations authorized OPM to set pay in a few localities using data

from commercial surveys rather than from BLS. However, OPM found that the private data were

not well suited to the task. See House Committee on Appropriations, Treasury, Postal Service, and

General Government Appropriations Bill, 2001, report to accompany H.R. 4871, Report 106-756

(July 18, 2000), p. 79; and President’s Pay Agent, Using Commercial Salary Surveys and/or BLS Surveys

to Establish New Locality Pay Areas (November 2001).

3. Office of Personnel Management, A Fresh Start for Federal Pay: The Case for Modernization, White

Paper (April 2002). 

In response, the Congress gave OPM the authority to follow the example of private-sector

firms and use commercially available salary data.2

Flexibility. Some observers have criticized the process by which the results of federal pay

comparisons, even if accurate, are used to set salaries. In a recent report, OPM argued

for more flexibility in the federal pay system, including the ability to vary pay raises by

occupation.3

 Under current practices, all employees in an area get the same percentage

raise, which is based on estimates of what pay comparisons reveal to be the average difference between federal and nonfederal salaries. But data from OPM and others show

that federal/nonfederal pay differences vary widely by occupation, and those differences

are consistent across geographic areas. In that case, granting the same percentage raise

to all employees in an area would mean that some employees might be overpaid, relative

to nonfederal workers, and others underpaid. Critics have also argued that the government should more closely follow private firms’ practices and give its managers more flexibility to consider employees’ performance and other factors when determining pay raises.

The Comparisons in CBO’s Analysis

Given the Congress’s interest in using commercial pay surveys—which are routinely used

by private firms in setting pay—CBO obtained data on private-sector salaries from a wellestablished source, the Hay Group. In addition, CBO’s comparisons of salaries took into

account some of the weaknesses of the current approach. For example, the data it used

were drawn from more-recent surveys than some of those employed by OPM. CBO’s

approach also used a method for matching jobs that addressed concerns about BLS’s

methods in previous surveys.

Nevertheless, most of the available commercial data, as OPM has observed, have considerable limitations. In general, the personnel office has concluded that the data do not

meet high enough statistical standards for use in the current system. Pay data from commercial sources are not drawn from a random sample, which is the current BLS approach

and helps ensure that the results are representative of the larger population from which
MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY 5

4. The number of areas and jobs would permit a maximum of 306 comparisons (18 times 17), but data

were not available for each job and area. Most of the missing salaries were for jobs in technical and

clerical occupations. 

the sample comes. Instead, commercial data are drawn largely from the clients of privatesector pay consultants.

A further limitation is that the number of firms, jobs, and localities sampled in commercial surveys is significantly smaller than the number sampled by BLS. The smaller samples

provide less precision in pay comparisons. However, private firms using such data may

find them adequate because in contrast to the federal system, private pay setting often

gives less weight to the data and more weight to factors such as employee performance

and trends in job markets.

The data limitations notwithstanding, the results that CBO observed for the jobs and

areas it reviewed support the concerns about pay comparisons noted by OPM and others.

That is, the federal/nonfederal pay differences varied widely by occupation. Data on most

of the selected professional and administrative jobs that CBO reviewed tended to show

that federal salaries lagged significantly behind those offered by private firms. However,

for the technical and clerical jobs that CBO studied, the data showed either small differences in pay or federal salaries above the levels offered by private firms. 

Pay Comparisons Based on Commercial Surveys

In its analysis, CBO compared the salaries of federal General Schedule employees with

the pay of nonfederal employees in similar jobs. The General Schedule is the government’s largest pay plan, covering 1.2 million workers in a variety of white-collar occupations, such as secretary, engineer, personnel administrator, attorney, and biologist. From

the list of occupations that BLS surveyed, CBO selected specific jobs with a large number

of federal employees, conducting 253 separate comparisons involving 18 jobs and 17

localities.4 Recent OPM comparisons cover over 100 jobs and 32 localities. (The jobs

CBO reviewed are shown in Table 1 on page 7; Box 3 lists the localities.)

The federal salary for each job and geographic area came from the Office of Personnel

Management. In total, about 50,000 federal employees work in the jobs and areas covered

by CBO’s analysis. The Hay Group, a personnel management consultant, provided the

private-sector salaries; data were drawn from about 500 establishments, mostly in transportation, chemical, metal, and other goods-producing industries. Most of the firms were

clients of the Hay Group. Little information from state and local governments was

included in the consultant’s data. 
6 MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY

%R[ 

Geographic Areas Covered by CBO’s Analysis

For its pay comparisons, the Congressional Budget Office reviewed federal jobs in the

following localities:

Atlanta, Georgia

Baltimore, Maryland

Boston, Massachusetts

Chicago, Illinois

Dallas/Fort Worth, Texas

Dayton, Ohio

Denver/Colorado Springs, Colorado

Detroit, Michigan

Houston, Texas

Kansas City, Missouri

Los Angeles, California

Milwaukee, Wisconsin

New York, New York

Philadelphia, Pennsylvania

San Francisco/Oakland,

 California

Seattle/Tacoma, Washington

Washington, D.C.

How Jobs Were Compared

The Hay Group provided private salaries for jobs that matched corresponding federal

employment on the basis of evaluations of the actual work that employees performed

(see below). By contrast, the government’s pay comparisons use nonfederal salary data

for jobs that match descriptions of federal work, which some analysts believe are inaccurate. If descriptions are inaccurate, the jobs in pay comparisons will be mismatched,

and the results of the process will be misleading. CBO’s approach attempts to avoid such

problems by considering the actual work that is performed.

The Hay Group’s evaluations of federal work were conducted in five agencies in the

Washington, D.C., area: the Office of Personnel Management, the Internal Revenue

Service, the Department of Defense, the Securities and Exchange Commission, and the

Department of Justice (see Table 1). The consultant assessed the work of three or four

federal employees in each of the 18 jobs, interviewing incumbents about their responsibilities; the knowledge required to perform their job; the types of interactions, both inside

and outside the agency, that their job entailed; and the impact of their work on the

agency’s decisionmaking. It scored the jobs on the basis of their content so that they

could be ranked. For example, an attorney doing work that required mastering specialized

information acquired through considerable experience and training would rank higher

than an attorney doing work that required only basic knowledge of the law.

After completing its evaluations of federal jobs, the Hay Group provided CBO with the

average private salary in each locality for jobs whose work ranked similarly to that performed by federal employees in each of the occupations being studied. If Hay’s database

had fewer than five private salaries for a job in an area, it reported no average. CBO then
MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY 7

7DEOH 

Jobs Covered by CBO’s Analysis

Occupation/GS Level Occupational Group Agencya

Clerk/3 Clerical Office of Personnel Management

Clerk/4 Clerical Office of Personnel Management

Secretary/5 Clerical Office of Personnel Management

Secretary/6 Clerical Office of Personnel Management

Secretary/7 Clerical Office of Personnel Management

Secretary/8 Clerical Office of Personnel Management

Computer Operator/6 Technical Office of Personnel Management

Computer Operator/7 Technical Internal Revenue Service

Computer Specialist/13 Administrative Department of Defense

Personnel Specialist/14 Administrative Department of Defense

Accountant/7 Professional Office of Personnel Management

Accountant/9 Professional Office of Personnel Management

Accountant/12 Professional Internal Revenue Service

Attorney/11 Professional Internal Revenue Service

Attorney/12 Professional Internal Revenue Service

Attorney/13 Professional Internal Revenue Service

Attorney/14 Professional Securities and Exchange Commission;

Department of Justice

Attorney/15 Professional Securities and Exchange Commission;

Department of Justice

Source: Congressional Budget Office.

Note: GS = General Schedule.

a. Data on the listed jobs were gathered by the Hay Group, a personnel management consulting firm, in the agencies’ Washington

area offices.

used a method consistent with the government’s approach to calculate—for each job and

area—the amount by which federal salaries would have to rise (a positive difference) or

fall (a negative difference) to match private-sector pay. All of the differences calculated

were for 2000.

Results

The data from the Hay Group indicated wide variation in federal/private-sector pay

differences by occupation. For example, federal employees in selected professional and
8 MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY

More than -30 -21 to -29 -11 to -20 -1 to -10 1 to 10 11 to 20 21 to 29 More than 30

0

2

4

6

8

10

12

14

Percentage Difference in Salaries

Federal Pay Higher Than Private Pay

Federal Pay Lower Than Private Pay

)LJXUH 

Estimated Distribution of Federal/Private Salary

Differences for Selected Professional and Administrative

Occupations, 2000

(Thousands of federal employees)

Source: Congressional Budget Office based on data provided by the Hay Group and the Office of Personnel Management.

administrative occupations tended to hold jobs that paid less than comparable jobs in

private firms (see Figure 1). For about 85 percent of those federal employees, their pay

lagged behind private salaries by more than 20 percent. By contrast, about 30 percent

of federal employees in selected technical and clerical occupations held jobs with salaries

above those paid by private firms (see Figure 2). In general, jobs in technical and clerical

occupations showed much smaller differences in pay between federal and private workers.

About three-quarters of federal employees in this analysis held jobs in those occupations

with salaries that were within 10 percent, plus or minus, of private levels.

The results of CBO’s analysis are on a par with those reported by OPM. For example,

OPM reported that in 2000, salaries for federal professionals lagged behind private pay

by an average of 32 percent. The comparable figure for jobs in clerical occupations was

only about 7 percent. 
MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY 9

More than -30 -21 to -29 -11 to -20 -1 to -10 1 to 10 11 to 20 21 to 29 More than 30

0

2

4

6

8

10

12

14

Percentage Difference in Salaries

Federal Pay Higher Than Private Pay

Federal Pay Lower Than Private Pay

)LJXUH 

Estimated Distribution of Federal/Private Salary

Differences for Selected Technical and Clerical

Occupations, 2000

(Thousands of federal employees)

Source: Congressional Budget Office based on data provided by the Hay Group and the Office of Personnel Management.

Conclusion

Pay comparisons are complex undertakings, and the federal approach raises many difficult

issues. In the same way, the comparisons that CBO presents here have their limitations

—in particular, because they cover only selected jobs and localities. The results of both

comparison processes, however, reinforce a long-standing concern about the federal pay

system: it allows no variation in pay raises by occupation, with the potential result that

employees in professional and administrative occupations may receive smaller pay raises

than those needed to match private salaries for similar jobs, and employees in technical

and clerical occupations may receive pay raises that are higher than those needed to match

salaries in the private sector.

Thus, even if the current system was fully implemented as envisioned in FEPCA, it would

fail in its aim to provide federal pay that was comparable to pay for nonfederal jobs.

Granting the same percentage raise to all workers in an area will result in above-market

salaries for some occupational groups and below-market salaries for others. Moreover,
10 MEASURING DIFFERENCES BETWEEN FEDERAL AND PRIVATE PAY

5.

6. Audits of about 3,500 jobs conducted by the Army and Navy for the years 1989 through 1992 show

that 2 percent of positions had pay grades higher than warranted by the work involved and 1.3 percent

had pay grades lower than warranted. Those percentages are much lower than the figures in a 1983

study by OPM, which estimated that 14.3 percent of the General Schedule workforce was overgraded

and 1.5 percent was undergraded.

7. For further discussion of that issue, see Congressional Budget Office, Comparing Federal Salarieswith

Those in the Private Sector.

the jobs that show the greatest pay disadvantage for federal workers make up an increasing

share of the federal workforce. From 1985 through 2000, for example, federal employment in professional and administrative occupations rose from 41 percent to 56 percent

of total federal civilian employment.5

The consequences for the federal government of low pay for its employees may vary across

jobs and agencies. In some cases, generous employee benefits, job security, and other conditions of federal employment may compensate for relatively lower salaries. In other cases,

federal managers may be able to manipulate the pay grades of some jobs to obtain higher

salaries for workers.6 Some evidence also suggests that relatively low federal salaries may

result in an adjustment in the employees attracted to federal service, with the federal

government on occasion having to accept employees with less experience and training

than private firms would.7

See Congressional Budget Office, Changes in Federal Civilian Employment: An Update (May 2001).

This publication and others by CBO

are available at the agency's Web site:

www.cbo.gov