According to an executive order that will take effect on January 1, federal employees will receive an overall pay raise of 4.1%, as well as an average locality-based pay raise of 0.5%, indicating that some 2.1 million federal employees will receive average raises of 4.6%. Biden announced the raise four months ago in a letter sent to House Speaker Nancy Pelosi (D-CA) and Vice President Kamala Harris, which cited recruitment and retention problems.
“Multiple years of lower pay raises for Federal civilian employees than called for under regular law have resulted in a substantial pay gap for Federal employees compared to the private sector,” Biden said. “This alternative pay plan decision will allow the Federal Government to better compete in the labor market to attract and retain a well‑qualified Federal workforce.”
The raise falls below the 7.1% year-over-year inflation rate recorded last month. Real average hourly earnings, which consider the impact of inflation, decreased 1.9% year-over-year as of last month, according to data from the Bureau of Labor Statistics. A simultaneous 1.1% decline in the average workweek implies a 3% overall decrease in real wages.
The federal government spent approximately $215 billion in the fiscal year 2016 compensating federal civilian employees, according to a report from the Congressional Budget Office. Federal employees usually receive periodic wage increases on the basis of factors such as performance, longevity, and changes in private sector pay.
Presidents desiring to increase federal salaries are allowed under federal law to submit a plan to Congress by September 1 of the previous year, including their reasons for suggesting a raise. In considering any wage hikes, the commander-in-chief needs to consider “pertinent economic measures” such as economic output and inflation.
Private sector employers regained all of the jobs lost during the lockdown-induced recession as of June, even as government employers regained slightly more than half of jobs lost, as noted in a report from Axios. The shortages of government workers occur despite windfall tax revenue, which followed robust economic growth last year.
Both private and public employers have expressed concern regarding a labor shortage that has worsened inflation as organizations hike pay to attract new workers. The phenomenon comes as labor force participation failed to recover over the past two years, worsening a decades-long trend of low engagement in the job market. The metric dropped from 63.4% in February 2020 to 60.2% in April 2020 amid government lockdowns and business closures, according to data from the Bureau of Labor Statistics. Labor force participation climbed to 62.1% as of November 2022.
Federal Reserve Chair Jerome Powell has said that the workforce “participation gap” is a result of “excess retirements” that occurred beyond “what would have been expected from population aging alone,” even as young people largely regained jobs. “In the labor market, demand for workers far exceeds the supply of available workers,” he commented while discussing the central bank’s recent efforts to roll back monetary stimulus. “Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market.”