This study begins to extend the dynamic retention model to federal civil service employment. Models are estimated and then used to simulate the effects of pay freezes and unpaid furloughs. Permanent pay freezes decrease the workforce retained by 7.3 to 8.5 percent; temporary freezes as well as furloughs have virtually no impact. For all the employee subgroups considered, the fit to actual data is excellent, and all of the model parameter estimates are statistically significant.

Cover: The Federal Civil Service Workforce
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The Federal Civil Service Workforce

Assessing the Effects on Retention of Pay Freezes, Unpaid Furloughs, and Other Federal-Employee Compensation Changes in the Department of Defense

by Beth J. Asch, Michael G. Mattock, James Hosek

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Research Questions

  1. How do changes in compensation policy, including pay freezes and unpaid furloughs, affect the ability of the federal civil service to attract and retain personnel?
  2. Can a model be developed that is estimated with data on the individual careers of civil service employees and that permits analyses of the retention effects of compensation changes, without the drawbacks of the methodology used in past studies of civil service compensation?

Planners and policymakers must be able to assess how compensation policy, including pay freezes and unpaid furloughs, affects retention. This study begins to extend the dynamic retention model (DRM) — a structural, stochastic, dynamic, discrete-choice model of individual behavior — to federal civil service employment. Models are developed and estimated,using 24 years of data, and then used to simulate the effects of pay freezes and unpaid furloughs. A permanent three-year pay freeze decreases the size of the retained General Service (GS) workforce with at least a baccalaureate degree by 7.3 percent in the steady state. A temporary pay freeze with pay immediately restored has virtually no impact on retention. When pay is restored after ten years, the retained GS workforce falls by 2.8 percent five years after the pay freeze and 3.5 percent ten years after it. An unpaid furlough, similar to the six-day federal furlough in 2013, has no discernible effect on retention. For all subgroups of GS employees for which the model is estimated, the model fit to the actual data is excellent, and all of the model parameter estimates are statistically significant. In future work, the DRM could be extended to provide empirically based simulations of the impact of other policies on retention; to estimate effects on other occupational areas, other pay systems, or specific demographic groups; or to create a "total force" model (military and civilian) of DoD retention dynamics and the effects of compensation on those dynamics.

Key Findings

  • The dynamic retention model can be extended to assess the impact of compensation policies on retention of federal civil service personnel.
  • For each subgroup of federal civil service employees for which we estimated our model, the fit of the model to the actual data is excellent, and all of the model parameter estimates are statistically significant.
  • Civilian DoD employees, on average, have a positive taste for defense employment and value its nonmonetary aspects.
  • A permanent pay freeze adversely affects the size of the civil service workforce that is retained but a temporary one has virtually no effect in the long run.
  • Unpaid furloughs, similar to the six-day federal furlough in 2013, appear to have no discernible effect on retention of federal civil service personnel, in either the steady state or the transition period.

Recommendations

  • The DRM capability should be extended to simulate the retention effects of other policies of interest.
  • The DRM capability could also be extended to other occupational areas within DoD, to other pay systems, to specific demographic groups, and to specific locations of interest. Furthermore, with appropriate data, this capability could be applied to civil service workforces in other agencies within the federal government, including the Department of Veterans Affairs, the Department of Homeland Security, and the various agencies that make up the intelligence community.
  • The DRM model itself could be extended to incorporate the fact that some civil service personnel leave and then return or to incorporate changes in expectations about future policy changes. Such an extension of the model would require incorporating a model of how workers form and change their expectations.
  • The model could be extended to create a "total force" model of DoD workforce dynamics and the effects of compensation on those dynamics, where the total force includes active and reserve military personnel and DoD civilians (but not contractors).

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    A Stochastic Dynamic Model of Retention for DoD Civil Service Employees

  • Chapter Three

    Estimation Results

  • Chapter Four

    Simulations of the Effects of Compensation Changes on Civil Service Retention

  • Chapter Five

    Policy Implications and Areas for Future Research

  • Appendix

    Locality Adjustments in General Schedule Salaries

Research conducted by

This research was conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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