The authoritative and independent Congressional Budget Office has made it official: federal workers really are much more expensive than their civilian counterparts. In a report released on Monday, the CBO reported that “overall, the federal government paid 16% more in total compensation than it would have if average compensation had been comparable with that in the private sector.” For those with a high school education, the total differential was 36 percent and for the group with bachelor’s degrees it was 15 percent. Appropriately, those with advanced degrees – read policy makers – actually received less in compensation than their private sector counterparts.
The most stunning difference is in benefits – health care, retirement and paid vacation. According to the CBO, “average benefits were 46 percent higher for federal employees whose highest level of education was a bachelor’s degree than for similar private-sector employees and 72 percent higher for federal employees with no more than a high school education than for their private-sector counterparts.”
Based on this new information, how on earth can the Obama Administration justify its efforts to grow the size of the federal government? Even more important, how can the Department of Defense continue its insourcing activities, giving private sector work to the public defense industrial base? The department has just published its defense priorities and choices document which assumes a $60 billion dollar savings from greater efficiency. The CBO analysis suggests that insourcing actually makes DoD less efficient.
Most of the work DoD is attempting to insource involves a work force, albeit skilled, with high school or AA degrees, the group where the cost differential between public and private sector workers is the greatest. Claims by public sector depots and, in particular, Air Logistics Centers that they are cost competitive versus the private sector now must be considered suspect. Yet, the military services have conducted business case analyses (BCA) that frequently conclude that the public sector can do the work more cheaply than the private sector. In 2010, the Air Force published its guidance for implementing insourcing (known as RMD 802), that presumed a 40 percent cost savings when jobs were shifted from the private to the public sector. With the 36 percent average cost premium for blue collar public sector workers versus those in the private sector, the Air Force must assume that its government work force is 76 percent cheaper. In what universe could this be true?
While there is a substantial wage rate differential between the public and private sectors for both high school and bachelor’s degree categories of workers, the biggest difference is in benefits. It is no wonder that federal unions and their supporters in Congress have attempted to get benefits excluded from the BCAs when making insourcing decisions. This is simply dishonest. I do not begrudge the average public sector worker his or her benefits package, but let’s not pretend that this does not result in a real cost disadvantage for these workers compared with the private sector.
Insourcing is one of the biggest threats to DoD’s efforts to avoid a hollow force. Current Pentagon efforts at insourcing will be compounded by new provisions in the FY 2012 National Defense Authorization Act that expands the role of the public defense industrial base at the private sector’s expense. At a minimum, the result will be a 16 percent premium on every dollar shifted from the private to the public sector. When this tax is levied on a shrinking defense budget, the result could be a “death spiral.”
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