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Federal Salary Freeze a Red Herring

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President Obama has now proposed a two-year salary freeze for all federal civilian employees, but analysts argue that this headline-making move is the wrong policy.

The freeze, which requires congressional approval, affects two million workers in 2011 and 2012 and saves $5 billion. The Wall Street Journal noted that’s just a fraction of the current $1.3 trillion annual budget deficit, but the gesture could have broader political ramifications:

“It was seen by members of both parties as a sign that Mr. Obama, in the wake of what he called his electoral "shellacking," might be willing to tack away from his liberal base in search of compromise with Republicans.”

Dennis Gartman, editor of The Gartman Letter, applauded Obama’s decision. “We may make some of our friends on the Right angry in taking this position, but we think the President’s decision yesterday to freeze the pay of the federal civilian work force is a clear step in the right direction,” Gartman writes this morning.

Others aren’t so sure, however. Andrew Biggs of the American Enterprise argues that Americans are right to be concerned that government employees receive pay, benefits, and job security that exceed those of private-sector workers. In fact, his work has documented that federal employees receive salaries at least 12 percent above those of private-sector workers with the same education, experience, and other personal characteristics.

But a two-year freeze isn’t the best way to solve the problem, Biggs says. His research shows that the federal pay premium isn’t uniform, meaning that some federal workers receive little or no pay advantage while others receive very large pay differences.

So, as Biggs sees it, the answer to an overcompensated federal workforce is a rigorous independent analysis of federal pay—how much different workers receive in salary and benefits and how these compare to similar private-sector employees—followed by new pay processes that adjust compensation to better match that of private markets.

“The point is that a one-size-fits-all pay structure doesn’t work well today and that a one-size-fits-all solution won’t improve things going forward,” he says.

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