Federal Employees at the Trough

Last week, USA Today reported that nearly one in five federal government employees now earn over $100,000. The paper also reported the average federal salary rose to $71,260, almost $31,000 more than the comparative average private-sector wage. 

Within the Department of Defense, over 10,000 employees (as of June 2009) now earn at least $150,000 per year, a 5½-fold increase in the number of employees eclipsing this salary threshold from just eighteen months ago. 

At the same time as federal employee salaries have been soaring, total private sector earnings have steadily declined as the unemployment rate escalates (now at 10%) and the average workweek declines.  In fact, in November, private-sector employees worked an average of just 33.2 hours, slightly above the all-time low set in October (33.0 hours) and well below the forty hours guaranteed to federal employees. Simultaneously, average private sector hourly earnings totaled $18.74 per hour, significantly below the implied hourly wage rates ($34.25 per hour) paid to the average federal employee.

However, simply analyzing the growth in total paid compensation fails to capture the true explosion in benefits paid to federal workers. 

For example, government employees almost never work on weekends. And if a federal employee does work on Sunday, he becomes eligible for Sunday Premium Pay. Federal employees are also entitled to compensatory time off in lieu of overtime pay, a benefit few private sector firms are able to offer. 

Paid time off for federal employees is also extremely generous. Employees with less than three years' tenure earn twelve paid days off per year. For service between three and fifteen years, workers are guaranteed eighteen days off with pay. And when an employee reaches fifteen years of service, this benefit grows to twenty-four days.

Federal employees are also guaranteed ten federal holidays with pay.

With all this time off, some government workers might be hard-pressed to use actually use it. No worries -- federal workers have a very liberal carryover policy: thirty days for all employees. However, if you get stationed overseas, this policy expands to forty-five days. And if you become classified as a "Senior Executive Service," a "Senior-Level" [employee], or a "Scientific or Professional Employee," the policy expands to ninety days. 

Naturally, at retirement, or if an employee decides to leave government service, any unused time is compensated for with cash -- a lump-sum payout that could easily amount to between $6,000 and $17,800 based on the "average" federal salary figure. For senior-level employees who earn the highest pay levels, such payouts could easily total $30,000 and might even exceed $50,000, thereby eclipsing the average annual salary of an American in the private sector.

The benefits continue. On top of paid time off, federal employees are also eligible for half a day of sick time per biweekly pay period. Thus, in a 52-week year, each full-time employee may accrue 13 days of sick time. There are also no limits on the amount of sick leave an employee may accumulate. Moreover, when an employee retires, any unused sick pay is added to the calculation of the employee's retirement annuity, thereby increasing the value of the annuity payouts received by federal employees during retirement.     

And yet there is still more.  As part of the Student Loan Repayment Program, a benefit enacted by Congress in 2007, all federal government employees are eligible for up to $10,000 per year in student loan forgiveness, a benefit capped at $60,000 per individual.  (This benefit requires ten years of government service.)

Health care benefits provided to federal employees are also quite extensive and lucrative. Notably, there are a minimum of nine national pay-for-service health care plans from which an employee may select. To supplement these nine national plans, there are a number of additional agency-specific plans as well as state-specific HMO, HDHP, or CDHP plans that are also employee options. 

On top of basic health care insurance plans offered to its employees, the federal government also provides a full range of vision and dental care plans. Of course, all of these insurance programs are heavily subsidized (up to 50% of the total cost for a family policy) by the U.S. taxpayer.

Finally, the federal government even provides a subsidized life insurance to its employees. Under this program, employees pay only two-thirds of the monthly insurance premium while the U.S. taxpayer covers the rest.

On top of all these incentives, Congress has recently decided to expand the handouts. While consumer prices have steadily declined throughout 2009 (the annual CPI rate fell 0.2% through October), the U.S. Congress just passed legislation that would provide an across-the -board 2% pay raise for all federal employees. As such, federal employees will soon receive a 2.2% real pay increase as private sector wages remain stagnant or fall.

Currently, the U.S. Office of Personal Management estimates that there are just over 4.2 million federal employees. Thus, based on the average salary figures reported by USA Today, total wages paid to all federal employees now total nearly $300 billion per year, or about $1,000 for every man, women, and child in the United States. Add to this figure the costs of insurance, paid time off, and retirement benefits (which have not even been quantified here), and the total federal outlay to "pay" federal employees soars by billions more. 

Simply stated, this trend cannot be sustained.

With last year's U.S. federal deficit of more than $1.4 trillion, it will become increasingly difficult to reduce the government's level of red ink, particularly if the federal government continues to expand. However, it now seems quite obvious that the government employment will continue to expand, especially under a nationalized health care system or once Obama's new Consumer Financial Protection Agency officially becomes part of the government Leviathan.

Americans and the media remain almost uniformly against the large bonuses being paid to Wall Street bankers -- even though these bonuses must come from the (albeit subsidized) revenues generated by these firms. Given what has been going on in the public sector, perhaps it's about time for Americans to refocus their anger on the public bureaucrats who feed daily at the trough of the tax dollars generated by their indentured servitude in the private sector.

Paul B. Matthews is a consultant and a Texas-licensed CPA.  He is a former hedge fund manager.