Buy or build: cost of outsourcing services depends on scope of factors considered

New GAO Report reads a bit like the two-handed lawyer: on the one hand....

But that appears to have been the limited goal of the study. Notwithstanding, it did highlight the problematic notion that method may determine outcome.

Results of Studies on Federal Pay Varied Due to Differing Methodologies

A careful consideration of federal pay is an essential part of fiscal stewardship and is necessary to support the recruitment and retention of a competent, successful workforce. Recent studies comparing the compensation of federal workers to workers in other sectors have produced varying findings. To improve understanding of federal pay setting, GAO was asked to examine

(1) how annual pay adjustments for the GS system are determined;

(2) the extent to which the pay increases and awards available to GS employees recognize individual performance, and how the Office of Personnel Management (OPM) provides oversight of pay increases and awards; and

(3) how selected studies compare federal and private pay and total compensation and the factors that may account for the different findings.

GAO reviewed legislation, OPM regulations, executive orders, and federal agency documents; analyzed OPM data; and interviewed agency officials. GAO reviewed six studies that met three criteria: issuance since 2005, original analysis, and focus on federal and private sector compensation.

GAO compared and contrasted the differences between their approaches, methodologies, and data sources, and interviewed the studies’ authors, people with expertise in compensation issues, and agency officials responsible for the data.

Findings of selected pay and total compensation (pay and benefit) comparison studies varied due to different approaches, methods, and data.

Regarding their pay analysis, the studies’ conclusions varied on which sector had the higher pay and the size of pay disparities. However, the overall pay disparity number does not tell the whole story; each of the studies that examined whether differences in pay varied among categories of workers, such as highly or less educated workers or workers in different occupations, found such variations.

Three approaches were used to compare pay:

• human capital approach (3 studies)—compares pay for individuals with various personal attributes (e.g., education, experience) and other attributes (e.g., occupation, firm size);

• job-to-job approach (2 studies)—compares pay for similar jobs of various types based on job-related attributes such as occupation, does not take into account the personal attributes of the workers currently filling them; and

• trend analysis approach (1 study)—illustrates broad trends in pay over time without controlling for attributes of the workers or jobs.

When looking within and across the studies, it is important to understand the studies’ differences in approach, methods, and data because they impact how the studies can be interpreted.

The differences among the selected studies are such that comparing their results to help inform pay decisions is potentially problematic. Given the different approaches of the selected studies, their findings should not be taken in isolation as the answer to how federal pay and total compensation compares with other sectors.

GAO provided drafts to agencies and study authors for review and comment and made technical changes as appropriate in response to comments received. One study author provided written comments concurring with the findings.

GAO is not making any recommendations in this report.

No Mention of Contractors, But Federal and Private Pay Differences Depend on Methodologies

The issue of federal vs. private sector pay has been hotly contested, and was the subject of a March 2011 hearing before Chairman Ross’ Subcommittee. Unfortunately, that hearing raised more questions than it answered and GAO was called into to analyze the pay gap issue. The GAO report fails to make any recommendations, but it provides a comprehensive explanation of the legal and practical reality of the federal pay system and why comparisons to the private sector vary in their conclusions about the pay gap.

GAO found that the studies used different methodological approaches, methods, and data. That was expected, as we had previously pointed out flaws in the Heritage Foundation 2010 study, which found that “federal employees earn approximately 30 percent to 40 percent more in total compensation (wages and benefits) than comparable private-sector workers.” POGO calculated the federal and private sector compensation gap to be 20 percent, but we emphasized that no one will really know the truth until uniform systems are created and apples-to-apples comparisons are conducted that factor in comparable skills, work experience, education, and other non-pay factors.

The debate is important for the limited purpose of complying with the Federal Employee Pay Comparability Act of 1990. However, if the prevailing attitude is, as Heritage has proclaimed (see p. 16), that the private sector is cheaper than the public sector, and therefore we should “Hire More Private Contractors,” then GAO’s time and energy was wasted.

A comparison of federal and private sector pay doesn’t do anything to help contribute to the government’s decisions to insource or outsource work. While there are relevant policy concerns related to the 2.1 million civilian federal employees (who cost $200 billion in fiscal year 2011), there are more concerns with the unknown number of service contractor employees, who cost about $120 billion more.