We used the difference between the average payroll cost per employee for the 2.2 million employees at the beginning of fiscal year 1993 and for the 1.9 million employees at the end of fiscal year 1997 to approximate a $21.6 billion payroll increase for a constant workforce of 1.9 million employees. Impact of Downsizing on Federal Payroll and Human Capital

Between the beginning of fiscal year 1993 and the end of fiscal year 1997, the total federal payroll cost grew by $8.7 billion to $102.4 billion, even though the number of employees decreased by about 300,000, because the payroll cost reductions attributable to the employees who left were less than the increased payroll costs for those employees who remained with the federal government. In terms of 1997 constant dollars, however, the payroll declined by $2.4 billion during the 5-year downsizing period. For comparison, in terms of 1997 constant dollars, the payroll increase was approximately $6,460 per employee and $12.0 billion for 1.9 million employees. The increased payroll costs for those employed by the federal government were attributable to several causes, but the predominant cause was the annual, statutorily-based pay adjustment meant to make federal pay competitive with that of nonfederal employers. Certain changes in the characteristics of the federal workforce also increased the overall federal payroll cost. The net increase of $8.7 billion in the payroll occurred because employees’ payroll costs increased in excess of the payroll cost reductions resulting from the separation of about 300,000 employees during the period. Factors that Increased the Federal Payroll During Downsizing

Table 2.1 shows the factors and the extent to which each contributed to the changes in employees’ average pay and benefits and to total federal payroll costs. Also, the total change in the cost of benefits, compared with the 5- year period preceding downsizing, was $4.2 billion less governmentwide, due primarily to the reduction in the number of employees. OPM officials said that the increase in retirement and Social Security contributions during downsizing was due primarily to the increasing number of employees covered by the Federal Employees Retirement System (FERS). The resulting changes in the characteristics of the workforce caused the average grade level to increase from GS-9.1 to GS-9.5 during downsizing. Performance pay increases were a combination of GS quality step increases and merit pay increases.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the factors causing the federal payroll to increase while the number of federal employees decreased during downsizing, focusing on the extent to which each major factor contributed to the increase in the federal payroll during fiscal years (FY) 1993 through 1997.

What GAO Found

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.