Since 1991, Congress and the Bush and Clinton administrations have been reducing federal employment levels as a means of reducing federal costs and controlling deficits. For much of the period since January 1, 1993, Department of Defense (DOD), and since March 30, 1994, non-DOD, agencies have been paying separation incentives—commonly known as buyouts—to induce employees to voluntarily leave federal service. However, the federal payroll increased by $8.7 billion, or 9.3 percent, from $93.7 billion to $102.4 billion, while the federal civilian workforce was reduced by about 297,000 employees, or 13.8 percent, to 1.9 million employees during fiscal years 1993 through 1997. To determine why, we identified and analyzed the major factors that resulted in an increased federal payroll at the end of this period of downsizing. We also summarized our prior studies on the impact of downsizing on human capital. The administration and Congress began to reduce the number of employees in DOD agencies in 1991—primarily through military base closings—to reduce the federal payroll. Beginning in 1993, Congress and the administration, through a series of legislative acts and executive orders, established authorities and goals for reducing federal staffing levels governmentwide. In this regard, three key pieces of legislation were the National Defense Authorization Act for Fiscal Year 1993; the Federal Workforce Restructuring Act of 1994; and section 663 of the Treasury, Postal Service, and General Government Appropriations Act of 1997, each of which authorized agencies to pay separation incentives—commonly known as buyouts—of as much as $25,000 to eligible employees as inducements to leave federal service voluntarily. Buyouts provided agencies a tool to avoid or reduce the need for reductions-in-force. The National Defense Authorization Act authorized buyouts for civilian employees at DOD agencies from January 1, 1993, through September 30, 1997. This closing date was later extended to September 30, 1999. The Federal Workforce Restructuring Act of 1994, in addition to authorizing buyouts, mandated governmentwide reductions of 272,900 full-time equivalent (FTE) positions through fiscal year 1999. The Workforce Restructuring Act generally gave non-DOD agencies authority to offer buyouts from March 30, 1994, through March 31, 1995. The 1997 appropriations act gave most non-DOD agencies the authority to offer buyouts from October 1, 1996, through December 30, 1997. More recent legislation has extended the authority for offering buyouts for DOD agencies to September 30, 2001, and for some non-DOD agencies until September 30, 1999, with some specific agencies, such as the Internal Revenue Service, having authority until as late as January 1, 2003. The federal workforce was composed of about 1.9 million FTE non-postal employees at the end of fiscal year 1997. Most “white-collar” workers, about 1.6 million, are covered for pay and classification purposes by the General Schedule (GS), which consists of 15 grades, each broadly defined in law in terms of difficulty and responsibility of the work and the qualifications required for its performance. Other white-collar employees not covered under the GS system include the Foreign Service, certain Veterans Health Administration medical personnel, and the Senior Executive Service, which includes most employees above the GS-15 level. The Office of Personnel Management (OPM) categorizes each white-collar occupation on the basis of the general subject matter of work, level of difficulty or responsibility, and educational requirements. A description of the five categories follows. Professional occupations require incumbents to use discretion and judgment in applying knowledge acquired through education or training equivalent to a bachelor’s degree in a specialized field. Professional occupations include statistician, accountant, and architect. Administrative occupations involve the exercise of analytical ability, judgment, and the application of a substantial body of knowledge of administrative or management principles and practices. While these occupations do not require specialized educational majors, they do involve the type of skills typically gained through a general college education or progressively responsible work. These occupations include air traffic controller, criminal investigator, and financial analyst. Technical occupations consist of nonroutine work that is learned on-the- job or from specialized training less than that represented by college graduation, to support professional or administrative fields. Technical occupations include practical nurse, economics assistant, and engineering technician. Clerical occupations require incumbents to do structured work according to established policies, which are learned through training or work experience, to support office operations. Clerical occupations include secretary, clerk-typist, and customs aide. Other white-collar occupations include those miscellaneous occupations that are not included in one of the four other categories. Other white-collar occupations include corrections officers and police. Professional and administrative occupations generally have higher entry levels and average grade levels than do clerical occupations. As of September 30, 1997, federal blue-collar employees numbered about 250,000. They are covered by the Federal Wage System (FWS), the major pay system covering trade, craft, and labor occupations. These occupations include machine tool work, printing, and plumbing and pipefitting. Wage schedules consist of 15 grades, covering most nonsupervisory employees. Schedules for supervisors and leaders are based on the nonsupervisory schedules, but are separate from them. The federal payroll has three primary components—basic pay, premium pay, and the cost of benefits provided to the employees. Basic pay consists of the salaries and wages paid directly to employees for duties performed during the employees’ regular workweek. Basic pay also includes amounts paid for annual and sick leave. Premium pay is supplemental pay, such as overtime, for work in excess of the regular workweek, which is generally an 8-hour day and a 5-day week that does not include Sunday. Benefits provided to employees at a cost to the government include agencies’ shares of health and life insurance premiums and retirement contributions. The benefits cost category also includes severance pay or buyout payments made to employees leaving the federal government. Most federal employees receive annual pay comparability adjustments under the Federal Employees Pay Comparability Act of 1990 (FEPCA). FEPCA introduced a new annual pay-setting process that, beginning in 1994, was to gradually raise federal pay rates to within 5 percent of nonfederal rates by the year 2002. Annual pay comparability adjustments consist of two components: a single nationwide basic pay schedule percentage adjustment and varying adjustments in specific localities. The nationwide adjustment is based on the Employment Cost Index (ECI), an index prepared by the Bureau of Labor Statistics that measures the change in nonfederal employers’ wages and salaries. The ECI adjustment generally applies to GS—that is, most— federal employees; Foreign Service pay schedules; and pay schedules established under title 38 for certain Veterans Health Administration employees. It may also be applied to other pay systems, such as the Senior Executive Service. The locality pay adjustments apply to specific geographical areas within the continental United States in which surveyed nonfederal pay rates exceed GS pay rates by 5 percent. As with the ECI adjustment, the locality pay adjustment may also be applied to other pay systems up to established statutory pay ceilings. The locality and nationwide pay comparability adjustments were intended to deal with the pay gap as well as any annual increases in nonfederal pay rates. At the time of enactment, the estimated pay gap was about 28 percent, and FEPCA required that 20 percent of the gap be closed in 1994, with locality pay adjustments each year thereafter until the pay gap was reduced to 5 percent. FEPCA also authorizes the President to propose lower alternative pay comparability adjustments under certain specified conditions. Since 1994, either the adjustment based on the ECI or the locality pay surveys have been limited by alternative adjustments by the President and Congress. Employees’ pay also varies at a given grade level, depending on which of 10 steps the employee occupies within that grade. Each higher step increases the employee’s rate of basic pay within that grade. Employees’ advancement to the next step within a grade (career step increases) is to be based on performance at an acceptable level of competence and established waiting periods for the steps. The waiting periods for steps 1 through 4, 5 through 7, and 8 through 10 are 52, 104, and 156 weeks, respectively. Employees demonstrating “high quality performance” may advance more rapidly through the steps by being granted additional performance-based step increases (quality step increases). An employee may receive only one such increase during any 52-week period. Pay under FWS is to be based on what private industry is paying for the same kind of work in local wage areas. Federal blue-collar employees are to be paid the full prevailing rate at step 2 of their grade. At step 5, the highest step, they may be paid 12 percent above the prevailing rate. Since fiscal year 1979, separate legislation has limited or delayed annual FWS wage adjustments. Blue-collar employees also receive career step increases and, based on creditable service, may advance to step 5 in about 6 years. However, there are no provisions for their receiving quality step increases. The Chairmen of the Senate Committee on Governmental Affairs and its Subcommittee on International Security, Proliferation and Federal Services asked us to analyze changes in the federal workforce’s pay and composition since passage of the National Defense Authorization Act for Fiscal Year 1993 and the Federal Workforce Restructuring Act of 1994, to determine why the federal payroll increased while the number of federal employees was decreasing. Our specific objectives were to determine to what extent and for what reasons the amounts of basic pay, costs of benefits, and premium pay changed during downsizing, and how, and to the extent possible why, grade and pay levels, the proportion of employees in occupations, and other demographics of the workforce changed in DOD and non-DOD agencies during downsizing and what impact these changes had on the federal payroll.