New report says ‘pay gap’ doesn’t exist
By Rick Maze - Staff writer
Posted : Friday Jun 29, 2007 14:42:21 EDT

A new congressional report appears to undercut efforts in Congress to approve bigger military pay raises by concluding that the so-called “gap” between military and civilian pay, which lawmakers are trying to close, no longer exists.

The report, released Friday by the Congressional Budget Office, the nonpartisan analytical arm of Congress, is not really a surprise. Budget analysts for Congress, the White House and the Pentagon have claimed for years that the pay gap — measured by comparing military and private-sector wage growth over the past two decades — is a flawed and inadequate way to measure military compensation because it counts only basic pay, which is only a small part of the direct and indirect compensation received by service members.

Basic pay, food and housing allowances, and the monetary advantage that derives from the fact that both of those allowances are tax-free, resulted in a 21 percent boost in total compensation for the average enlisted member over the past six years, according to the CBO report. And that doesn’t include the value of deferred compensation, such as retired pay and health benefits for retirees and their families, or the value of noncash fringe benefits, such as subsidized on-base shopping, child care and other community services, the report says.

The report was done at the request of the Senate Budget Committee, which asked specifically for a comparison of military to civilian rates of pay for enlisted personnel, who make up about 83 percent of the armed forces, said CBO Director Peter Orszag.

CBO analyst Matthew Goldberg said it is difficult to compare military and civilian occupations because there are many unique aspects to military life. But when using a broad definition of military compensation, it appears military people are paid at a rate equal to the 75th percentile of private-sector workers with similar education levels. In other words, service members are paid, on average, more than 75 percent of private-sector workers with similar education levels.

That is slightly better than the standard set by the Defense Department, which has strived in recent years to set military pay so that it matches salaries for the 70th percentile of private-sector workers.

Because the comparisons are difficult, Goldberg said another test of whether the military is paying enough is to look at recruiting and retention. While there are some problems and gaps in those areas, the services generally appear to be meeting goals and could use bonuses and special pays to cover shortfalls, Goldberg said.

Military payroll costs are a major budget issue, with Pentagon and service officials warning that pay and benefits for active, reserve and retired personnel and their family members have reached the point where they are squeezing weapons modernization projects out of the budget. The squeeze is only going to get worse, Goldberg said, warning that the planned buildup of Army active-duty strength over the next few years will add $5 billion a year to the defense budget by 2013.

By CBO’s measurement, enlisted personnel make about twice as much as they believe because of non-cash benefits (see chart). This is the same point made by budget-conscious lawmakers since the start of the all-volunteer force in the 1970s — and one reason why service members receive an annual statement showing the total value of military pay and benefits, including a list of fringe benefits they may or may not use.

One of the report’s suggestions is to lump military cash benefits, to include housing and food allowances, into a single payment and to more prominently notify people about the value of non-cash benefits, which could work to both quell complaints about low pay and make the Defense Department and Congress more aware of the effect of increasing or decreasing the number of people in the military or in adjusting pay.

The report comes as Congress is working on provisions of the 2008 defense budget that would provide military pay raises slightly larger than raises in the private sector, a plan aimed at closing the pay gap that CBO says doesn’t exist.

Under the House version of the 2008 defense authorization bill, military pay increases for January 2008 through January 2011 would be 0.5 percentage points larger than increases in average private-sector raises, as measured by the Labor Department’s Employment Cost Index.

This would result in a Jan. 1, 2008, pay increase of 3.5 percent for all ranks, 0.5 percentage points more than the Bush administration had requested. The Senate version of the defense policy bill also proposes a 3.5 percent raise in 2008, but does not mandate continuing bigger pay raises through 2011.

The CBO report not only says the pay gap doesn’t exist, but also faults the practice of linking annual military raises to the Employment Cost Index, a measurement of average private-sector raises calculated by the Labor Department’s Bureau of Labor Statistics. Service members generally are younger and less educated than the average workers measured by the index, the report says, which makes such comparison inaccurate.