Federal Employees News Digest

Shake up: Expert views federal pay raise proposals and trends as entering a murky future

The White House has proposed a zero percent pay raise for civilian federal employees in the coming year, while most federal employee unions and their allies in Congress are proposing an effective 3.1 percent increase. For the moment, a bill calling for the three-plus percent rise is advancing in the House—but whether or not this proposal will become the law of the land is not certain. Yet, this year’s annual debate over the federal pay raise comes in a long-term trend—as unions and other advocates of federal employees point out—of low- to no- pay raises over the years. Academic observers, human resource experts and employee unions have argued that over time, the trend has been unfair and on a practical level degrades the quality of our public-sector workforce. But what is the longer-term outlook for public sector pay—and federal pay, specifically? And what are some of the global forces that could affect that outlook? This week, FEND’s Nathan Abse speaks with Peter W. Philips, a labor economist and compensation expert on the faculty at the University of Utah. Philips discusses the federal pay raise proposal—but more generally on compensation trends and the macro trends affecting them.

BOX: Q & A with Peter W. Philips

What’s your take on public employee compensation at the federal level, at this point in time?  

Philips: I can give you my take on what’s happening in public employee compensation at the federal level as a trend—with an analogy to what’s been happening here in the academic world, here at the state employee level. I can use my university as an analogy—the University of Utah. Basically, we went several years with no raise. Then our raises have come in below inflation. It’s really become a kind of routine process, one of what I would call “bloodless wage cuts”—that is, raises that are there, but on average below inflation.

Your analogy at the state level seems about right for what is occurring at the federal employee level, yes—but why do you think this is happening?

Philips: Well, it’s rooted in the wider economic and political situation. Economically, for many years, in this country we have seen a long expansion, yes, but it’s been a slow expansion. Slow growth is an important factor in the overall picture. Because at the same time as you have slow growth, we see that you have tax cuts. In fact, you see, the slow growth is actually the source of the tax cuts—in the sense that the slow growth has created the political incentive for politicians to offset the negative effects of slow growth on take home income by offering—and ultimately passing—tax cuts.

Doesn’t this situation—in effect, governments enacting raises that don’t keep up with inflation, and stumbling into the future with austere tax cuts to stay politically viable—end up being a race to the bottom?  

Philips: It can be, yes. Again, you have to look at the wider economic picture. There are tremendous global pressures on the U.S. labor market, and these are tending to pull down all but a small segment of the U.S. labor market. That privileged segment includes tech, bio-tech, and generally some other more technological areas, which are doing far better compared to the rest of the economy. Government is certainly mostly not that. So, we are left with what? Overall growth—but slow growth, slow growth politically stimulating tax cuts that reduce the financing of government activity, which in turn leads—over time, effectively—to wage cuts of government employees. And those wage cuts—so that they aren’t perceived to upset the apple cart—come in the middle of the night, surreptitiously, in the form of below-inflation raises or wage freezes. And I see this at many levels of government. I see it here, at my university, over these many years now. Just as you are seeing a similar trend in the compensation of federal employees.

What does that add up to, in terms of performance, morale or other indicators, regarding the on-the-ground effects of “surreptitious wage cuts”?

Philips: You see a drop in morale, generally. Now, when I think of public employees more generally, where you see the most effect so far perhaps is, again, in the area of education, at the state and local level. I want to look at that example, because it is instructive. For instance, the place where morale has suffered the most [among public employees] is in public schools, and particularly in the more conservative states. That has led to the kind of pushback we have seen in West Virginia, Oklahoma and Arizona, for example. Strikes, demonstrations, and political pushback.

At the federal government level, though, we don’t see strikes—which are illegal—or anywhere near that level of radicalization, do we?

Philips: No. We haven’t seen that at the federal government—so far. But I would think that’s partly because the federal wages started out at a higher level than at state and local levels, and that the effective compensation cuts over time in public education have been more severe. I mean, again, those are very severe here in Utah. We don’t see people pursuing teaching as a middle class job anymore, and there is now a teacher shortage. There is competition between urban school districts to try to address the shortage. But in the rural school districts things have become severe—with high teacher turnover and low teacher quality. You see this in many other states, too, as I said. Local and state employees are another kind of public employee, but I think we could eventually see some of this situation with federal employees.

Where do you see this bad situation already shaping up in the federal workplace and compensation?

Philips: The same situation of low pay “raises” is already going on in the federal government. In some ways, the politics of trying to retain the best employees for federal services already has become one of benign neglect. Take the Internal Revenue Service, for example. At the IRS, staffing has gone down—way down, really—and the morale is already shown to be also pretty bad. Why? Why would this be allowed to happen, I mean? There’s a reason for this. There are constituencies in this country that are trying to make the tax system more dysfunctional, in part because avoiding paying taxes becomes easier. There are other parts of the government that are also enduring some of these trends.

 So, for now you see slow-speed pay cuts—the aging out of better paid older employees, and lower pay for newer employees, as pay and services overall erode—but what about the future?

Philips: Yes, that’s it for now. But, to some extent the opposite may be true in future. We just don’t know yet. That is to say, to some extent if most labor market opportunities in the U.S. are degrading, in terms of compensation, and some are degrading faster than others, then it’s possible that government work—and federal government work—may end up looking good. Government work may end up looking better than many other kinds of work, even if it’s not as good as it was seen to be in the past. It’s a relative perception.

Government workers might continue to receive inadequate raises, yet government pay could look good as seen against wider trends slowing wages across the economy?  

Philips: Yes. That’s right. But don’t stop there, since there is even another counter-trend that could take hold. Blowback. That is, I see blowback already developing here, against lower pay. There’s a movement to raise minimum wages. And in the public sector, there’s pressure to raise wages too—I already mentioned teachers. There’s a trend of strikes and actions by teachers, too, that may be growing. Still, I don’t see a powerful trend across the economy. I don’t see a return to a powerful labor movement. But, again, I do see these blowback pressures. We just don’t know how much or where they will lead us.

You’ve said that globalization caused some of these downward pay pressures, finally—where is globalization headed now?

Philips: That’s right. You and I discussed globalization—and the downward pressures on U.S. labor markets and unions caused by it—and related trends. But I see globalization—the way it’s been—as now coming apart at the seams. And not just in the U.S. How so? The politics here, in the Republican Party, and in the more conservative wing of right-wing parties in the U.K.—the Tories—and in Europe, are now taking up more the issues of right-wing populism. It’s largely a big political response to globalization, a colder take on globalization’s winners and losers. I do not see the resulting debates and innovations, the situation, stabilizing any time soon. That is, there will be a lot of new politics, new political innovations over the next decade. There very well might be—as part of these innovations, in terms of organization and political movements—new designs that address and create a new order, in a post-neo-liberal economic era. I really see that the current order and globalization as we’ve known it coming to an end.

Isn’t that dangerous—I mean, many argue that globalization hurt labor orgs and national interests, but undoing it might undo stable military alliances, raising the dangers of war?

Philips: If the post-global world actually becomes a world of trade blocs—one with more rigid trading relationships as part of less globalization—yes, it will be a more dangerous world. Historically speaking, trading blocs indeed have led to wars. You see a lot of moves away from globalization, already. In President Trump’s party, you see some of the changes I am talking about—the tariffs along with tax cuts. This is but one effort among a lot of experiments already starting. Across the Atlantic, in my view, you see that it’s probable that Brexit will happen, with the U.K.’s hard breakout from the European Union. Whether that becomes a disaster for the U.K. and it’s economy—that’s just not yet known.

What do you see in the future then, economically—bringing it back also with respect to compensation and public-sector compensation?

Philips: You see, no one knows where this will lead us, politically or economically, yet. All of these wider trends we’ve discussed will have impact on wages and compensation—and on public sector compensation. I think we need to think about the tremendous changes going on here. The next 10 years are likely to be a really crucial turning point—an epochal moment. As epochal as were the years between 1973 and 1983, years that saw the shift toward greater globalization. You see? A big moment. Another epochal moment was, say, from 1989 to the early 1990s—when the Cold War ended and the Soviet Union dissolved. The point I’m making is that now we are in one of these epochal turning points, and we just cannot know yet where it will lead us, these trends. But it is happening—with a trend away from globalization—and it is affecting whole economies, and of course compensation too.  

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