Federal Workforce

Payroll and Human Capital Changes During Downsizing Gao ID: GGD-99-57 August 13, 1999

Since 1991, Congress and the White House have been cutting the federal workforce in order to restructure government and reduce costs. The Defense Department and civilian agencies have been using buyouts to encourage employees to voluntarily leave federal service. During fiscal years 1993 through 1997, the federal workforce shrank by nearly 300,000 employees--a 13.8 percent reduction. At the same time, the federal civilian payroll rose by 9.3 percent--to $102.4 billion. GAO and others have raised concerns about the effects of downsizing on employees--a human capital issue. This report determines why, during a period of downsizing, the federal payroll increased while the number of federal workers decreased.

GAO noted that: (1) between the beginning of FY 1993 and the end of FY 1997, the total federal payroll grew by $8.7 billion to $102.4 billion, while the size of the federal workforce decreased from 2.2 million employees to 1.9 million; (2) in real terms, however, overall federal payroll costs decreased because, in 1997 constant dollars, the payroll declined by $2.4 billion during the 5-year downsizing period; (3) because the decrease in the number of employees for the most part offset actual aggregate payroll cost increases for those employees remaining on the payroll, GAO calculated payroll costs for a constant workforce of 1.9 million employees over the 5-year period to isolate the payroll cost increases and their causes; (4) on this basis, GAO estimated that, between FY 1993 and FY 1997, payroll costs in nominal dollars increased about $11,600 per employee and approximately $21.6 billion in total; (5) for comparison, in terms of 1997 constant dollars, this payroll increase was approximately $6,460 per employee and $12.0 billion for 1.9 million employees; (6) the increased payroll costs were attributable to several causes, but the predominant cause was the annual pay comparability adjustment that is intended to keep federal pay competitive with that of nonfederal employers; (7) the cost of employee benefits and changes in the characteristics of the federal workforce also played a major role in increasing the overall federal payroll cost; (8) employee benefits increased due primarily to: (a) incentives paid to separating employees; (b) the increasing proportion of employees in the Federal Employees' Retirement System (FERS) and the increasing cost of the government's required match for FERS employees' Thrift Savings Plan contributions; and (c) increases in health insurance costs; (9) changes in the characteristics of the federal workforce that increased payroll costs included: (a) career step increases based on tenure and satisfactory performance; (b) promotions; and (c) pay increases due to high quality performance; and (10) the payroll cost increases that resulted from these factors, however, were partially offset by the limited hiring of staff, at grades below the governmentwide average, whose lower pay levels helped dampen the overall average payroll and grade increases.


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