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President Obama Will Freeze Federal Worker Pay for Two Years

In a mid-morning announcement expected at 11:30ET, President Obama will freeze federal worker pay for two years, including civilian employees of the Defense Department.

Obama signaled a willingness to consider pay and hiring freezes as a way to rein in government spending during an October interview with The Washington Post.

The administration had examined pay levels, “and the data we get back indicates that high-skilled workers in government are slightly underpaid. Lower-skilled workers are slightly overpaid relative to the private sector,” Obama said.

“And that’s not surprising,” he added, “because it’s a unionized workforce” in government, while the private sector typically is not.

This is the latest in a movement across the country to freeze pay for public employees. AFSCME has basically had to fight this off at the state level for years now. Now their 2.1 million workers will see their salaries stagnate. Workers expected a 1.4% across-the-board pay raise for 2011 and 2012.

With 600,000 federal employees in the Washington area, consumer spending is sure to take a major hit there, and an economic slowdown is sure to follow.

I haven’t seen any estimates for exactly how much this would save. Erskine Bowles and Alan Simpson had a 3-year pay freeze in their deficit reduction plan, and they claimed that would save $15.1 billion annually by 2015. This would be reflected not only in wage savings, but in accrual to retirement as well. $15.1 billion is not a little bit of money, but this is a 2-year, not a 3-year freeze, and even the Obama Administration recognizes this as symbolic.

I think the ultimate impact of this is to make the public sector as desperate as the private sector for wage growth, rather than the desired dynamic of bringing the private sector up to the public sector’s level. Wage stagnation for the vast majority of the public, with soaring wage growth at the very top, increases inequality and, many experts say, is at the heart of our economic struggles. A workforce that cannot drive consumer spending will not help grow an economy that is largely dependent on consumer spending. And the tricks and bubbles designed to provide money for the middle class without wage growth that mirrors productivity led to the financial meltdown.

From a political standpoint, this is another concession, a day before a meeting with the Republican leadership on, among other things, deficit reduction. Presumably the President wants to be able to say that he gave on this pay freeze, and cannot see cutting the taxes of the wealthiest Americans after doing that. I’m pretty sure the Republicans won’t see it that way.

UPDATE: The NYT article on this made a point of mentioning that the number of public workers making over $150,000/year has shot up. Most of those are doctors working at VA hospitals, federal prisons and elsewhere. That seems like an important point.

UPDATE II: Sam Stein reports that the proposal would save $28 billion over 5 years and $60 billion over the next decade. Maybe that money should be invested! This is great, from Dean Baker:

“One has to ask why Obama would do this right now,” said Dean Baker, a progressive economist and co-director of the Center for Economic and Policy Research. “Is this supposed somehow be good for the economy? Is there a business anywhere in America that is going to create even a single job because a federal employee didn’t get a pay increase they had coming? I would love to see the economic theory that shows this.”

…Congress would have to approve this plan. Would the union?

UPDATE III: The fact sheet from the White House.

UPDATE IV: When Republicans brought this idea up earlier this year, Democrats castigated it on the Senate floor.

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David Dayen

David Dayen

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