Locality Pay Surveys
Under FEPCA, we must use salary surveys conducted by the Bureau of Labor Statistics (BLS) to set locality pay. Commencing with the 1996/97 surveys, BLS implemented a new survey design for its salary surveys. The new survey program, called the National Compensation Survey (NCS) program, was used in all BLS salary surveys started after September 1996. NCS uses probability sampling of occupations within survey establishments, rather than a fixed job list with detailed job descriptions, as had been used in the past.
The new survey process was not immediately accepted for use in the locality pay program. In fact, the Federal Salary Council recommended that the original NCS methods not be used to set Federal pay. After reviewing test data and several years of production surveys, the Pay Agent agreed with the Federal Salary Council's conclusion that the NCS program, as originally configured, should not be used for the locality pay program. However, the Pay Agent did not ask BLS to reinstate the previous methodology. The Pay Agent concluded that the NCS program has several advantages over the previous salary survey program, the Occupational Compensation Survey Program (OCSP). These include offering greater occupational coverage, being less costly, and being less burdensome on respondents.
The Pay Agent also concluded that certain major aspects of the NCS program would have to be improved before it would be prudent to use NCS data for making pay comparisons under the locality pay program. In 2002, Pay Agent and BLS staff implemented three of the five planned improvements in the NCS program, and the Federal Salary Council recommended that we begin to phase in the use of NCS data to set locality pay.
In our 2002 report (for locality pay in 2004), we began phasing in the NCS surveys by averaging the OCSP and NCS results (on a 50-50 basis). In 2003, we continued the phase-in by weighting NCS results 75 percent and OCSP results 25 percent. In 2004, we applied a 90 percent weight to NCS results and a 10 percent weight to OCSP results. Since the 2005 report (for locality pay in 2007), we have used only NCS survey results for the locality pay program.
Four of the five NCS improvements are fully incorporated into surveys used this year:
BLS continues to phase in the last improvement, which is the use of a four-factor job grading system with job family guides, as it replaces 1/5 of its establishment sample each year. This improvement will be completed in all survey establishments in surveys conducted in 2010 and delivered in 2011. It is designed to improve grade leveling under the NCS program. All of the improvements are described in the 2002 Pay Agent's Report to the President.
Industrial and Establishment Size Coverage
As required by FEPCA, BLS salary surveys used for the locality pay program include the collection of salary data from private industry and State and local governments, which have large numbers of workers, especially in certain occupations that are unique to government functions. Before 1991, BLS surveys for the pay comparability process covered only private sector goods-producing and service-producing industries.
BLS delivered two sets of data this year, data covering establishments with 50 or more workers and data covering all establishments with one or more employees. For establishments with 50 or more workers, BLS surveyed a total of 14,957 establishments. In the 29 separate metropolitan locality pay areas (excluding Buffalo and Raleigh), BLS surveyed 8,003 establishments. The Rest of U.S. (RUS) locality pay survey covered 48 additional metropolitan areas and 70 non-metropolitan counties. A total of 6,954 establishments were surveyed in the RUS area, including establishments in Buffalo. While Buffalo is now a separate locality pay area, BLS has not yet completed work on its geographic redesign and Buffalo continues to represent other locations in BLS' geographic sample. The Raleigh survey was discontinued in 2004 and has not yet been reinstated.
BLS surveyed a total of 21,695 establishments in surveys covering establishments with one or more workers. In the 29 separate metropolitan locality pay areas (excluding Buffalo and Raleigh), BLS surveyed 11,226 establishments. A total of 10,469 establishments were surveyed in the RUS area, including establishments in Buffalo.
The industry scope of the surveys includes private goods-producing industries (mining, construction, and manufacturing); private service-providing industries (trade, transportation, and utilities, information, financial activities, professional and business services, education and health services, leisure and hospitality, and other services); and State and local governments. Agriculture, forestry, fishing and hunting, and private households were excluded.
Under the NCS program, BLS uses random sampling techniques to select occupations for survey within an establishment. The occupations are selected and weighted to represent all non-Federal occupations in the location and, based on the crosswalk published in Appendix VII of the 2002 Pay Agent's report, also represent virtually all GS employees. OPM provided the crosswalk between GS occupational series and the Standard Occupational Classification (SOC) system used by BLS to group non-Federal survey jobs. OPM also provided March 2006 GS employment counts for use in weighting survey job data to higher aggregates. (BLS completed delivery of the most recent NCS surveys in July 2007, before March 2007 GS employment data became available.)
Matching Level of Work
In the NCS surveys, BLS field economists cannot use a set list of survey job descriptions because BLS uses a random sampling method and any non-Federal job can be selected in an establishment for leveling (i.e., grading). In addition, it is not feasible for BLS field economists to consult and use the entire GS position classification system to level survey jobs because it would simply take too long to gather all the information needed. This would also place an undue burden on survey participants.
To conduct grade leveling under the NCS program, OPM developed a simplified four-factor grade leveling system with job family guides. These guides were designed to provide occupational-specific leveling instructions for the BLS field economists. The four factors were derived and validated by combining the nine factors under the existing GS Factor Evaluation System. The factors were validated against a wide variety of GS positions and proved to replicate current grade levels.
The job family guides cover the complete spectrum of white-collar work found in the Government. BLS has been using the guides in its ongoing surveys and roughly 60 percent of the data this year are leveled under the new approach. Fully implementing the new leveling system will take 3 more years because of BLS' data collection cycle, where BLS conducts detailed interviews when establishments are added to the survey sample. A new government sample was completed in July 2007, and new private industry sample members will be completed by July 2010. See Appendix IV of the 2002 Pay Agent's report for a summary of the BLS data collection cycle. Appendix VI of the 2002 Pay Agent's report contains the job family leveling guides.
Jobs above GS-15
For the NCS program, it was necessary to develop generic instructions for identifying white-collar jobs in the random surveys that would be graded above GS-15 (above the highest grade in the General Schedule) if they existed in the Federal Government so that the data could be excluded from pay gap measurements. BLS developed and tested the guidance with assistance from OPM. Appendix V to the 2002 Pay Agent's report explains the process for identifying these jobs in the NCS program.
Grading Supervisory Positions
Grading supervisory jobs presented another problem for the NCS program because the Government does not use the FES approach to grade supervisory jobs. BLS' original NCS methodology included an experimental approach in which BLS first applied the FES to sampled supervisory positions and then added additional factor points for the level of supervision. OPM classifiers believed this experimental approach would not yield the correct grade level and suggested a new approach based on the highest level of work supervised. Under the new approach, BLS grades the highest level of work supervised using the appropriate four-factor leveling guide, not the supervisory job itself, and then adds one grade for a first-level supervisor, two grades for a second-level supervisor, and three grades for a third-level supervisor.
While BLS surveys all white-collar jobs under the NCS program, it does not find all jobs at all work levels in each survey area. This is a serious problem with the NCS program because survey results and pay disparity measures can vary considerably based on which jobs are included. The Pay Agent asked BLS to develop an econometric model to provide estimates for jobs not found in NCS. The model is described later in this report and in Appendices II and III.
BLS delivered data for both establishments with 50 or more workers (large establishments) and all establishments, i.e. including establishments with as few as one employee (small establishments). Establishments with no employees (single entrepreneur owners) are not covered by the surveys. Since locality pay began in 1994, we have used only data from large establishments in the locality pay program.
BLS defines an establishment as an economic unit that produces goods or services, usually at a single physical location, and is engaged in one or predominately one activity. BLS defines a firm as a legal business, either corporate or otherwise, and may consist of one establishment, a few establishments, or even a very large number of establishments. Hence, large firms can have small establishments if there were fewer than 50 employees at the site. Therefore, the pay practices at "small establishments" reflect the pay practices of large and small firms. BLS estimates there are 4.7 million firms in the United States with fewer than 50 employees that employ about 29 percent of full-time workers and only 248,000 firms with 50 or more workers that employ 71 percent of full-time workers, so most of the small establishments BLS selects to survey are likely also small firms.
The pay gaps in Table 1 including data from small establishments are actually higher, on average, than those limited to data from establishments with 50 or more employees. The typical pattern in the data was for pay levels to be lower in small establishments than in large establishments for lower graded jobs but higher for higher graded jobs. BLS found many relatively high pay management and physician jobs in higher grade levels in small establishments. Because we use Federal employment to weight the data and there are many higher graded Federal jobs, using data from small establishments increases the pay gaps.
Including data from small establishments increases the number of non-Federal employees represented by the data since about 29 percent of non-Federal workers are employed in small establishments. It also slightly reduces our reliance on modeled data, with about 1.7 percent more Federal employees represented by survey data rather than modeled results. However, the Federal Salary Council concluded we should review the results of using small establishments again next year before making any changes in the methods used for the locality pay program. We agree with the Council's recommendation and the remainder of this report is based on data from establishments with 50 or more employees.