How do federal pay raise formulas compare to private-sector wage growth and union contracts in 2025–2026?
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Executive summary
The 2025 federal civilian pay increase averaged 2.0% (1.7% across‑the‑board plus about 0.3% in locality adjustments), with actual raises by locality ranging roughly 1.88% to 2.35% (Office of Personnel Management and OPM examples) [1] [2]. Private‑sector wage growth in 2024–mid‑2025 ran substantially higher in many measures — BLS and independent trackers show private wage growth in the mid‑3% range (ECI ~3.6%–3.9% or higher by some trackers) — while union bargaining continued to produce many multi‑year or above‑market gains in 2024–2025 (union premium ~12.8% and major contracts with multi‑percent increases) [3] [4] [5] [6].
1. Federal pay: a politically chosen “alternative” to the statutory formula
By executive order the administration set a roughly 2.0% average federal raise for 2025 — a 1.7% base raise plus about 0.3% in locality adjustments — rather than letting the Federal Employee Pay Comparability Act (FEPCA) formula run; OPM’s January examples show the 1.7% across‑the‑board figure applied in payroll calculations [1] [7]. The White House and agencies have long used these alternative pay plans instead of the FEPCA formula because the statutory adjustment would have been far larger and is viewed as fiscally difficult to implement [8] [9].
2. How much feds actually got — locality matters
The 2.0% figure is an average; OPM’s locality tables produced a band of outcomes — for 2025 the spread ran from about 1.88% (Cleveland area) to about 2.35% (San Francisco area) for GS workers, so some federal employees received slightly above‑ or below‑average increases [2] [10]. Payroll guidance from shared‑services and wage‑grade notes confirm the 1.7%/0.3% split used across GS and wage systems [7] [11].
3. Private‑sector wage growth: higher and more uneven
Bureau of Labor Statistics measures and independent trackers show private‑sector wage gains in 2024–2025 outpacing the 2.0% federal average. The Employment Cost Index and related BLS releases document wage and total compensation increases for private industry in the mid‑3% range over 12‑month windows (ECI wages ~3.6% cited) and other trackers put nominal private wage growth around 3.9% [3] [4]. Sectoral differences matter: healthcare and social services and some occupations saw substantially stronger increases [12].
4. Unions and collective bargaining: a different bargaining leverage
Union contracts continue to produce wages and terms that often outperform nonunion market outcomes. Research cited by EPI finds workers covered by union contracts earn, on average, about 12.8% more than comparable nonunion peers — a union wage premium that operates alongside contract terms such as multi‑year COLAs, step increases and bonuses [5]. Major private‑sector and public‑sector contracts in 2024–2025 produced multi‑percent raises or protections that in many cases exceeded the federal 2.0% average (examples and labor‑movement coverage of large contract fights are documented) [6] [13].
5. What the numbers imply for pay competitiveness and retention
Compared with private‑sector wage growth measures (ECI/nominal trackers around the mid‑3% range), the 2.0% federal average suggests federal pay moves lagged market wage growth in 2025, worsening the long‑standing federal‑private gap noted by advocacy groups and the Federal Salary Council [14] [3]. Unions’ negotiated increases and the documented union wage premium indicate collective bargaining remains an effective route to lift wages above market and statutory averages [5] [15].
6. Competing perspectives and political pressures
Unions and some lawmakers pushed for much larger federal raises — AFGE and others sought 4.5% or FAIR Act proposals floated up to 7.4% — arguing for parity with military raises and to close private‑public gaps [16] [9]. The administration and some fiscal conservatives argued deviations from the FEPCA formula are necessary to preserve budget discipline and because the statutory formula would be costly [8] [17]. Both positions are supported in the record: unions cite wage gap statistics and bargaining wins; budget proponents point to the fiscal impact of the statutory formula [14] [8].
7. Limitations, open questions, and 2026 outlook
Available sources document 2025 pay actions and private wage measures through mid‑2025, but projections for 2026 involve competing scenarios: some reporting shows presidents continue to submit alternative plans (and a smaller 2026 civilian raise was later signaled), while FEPCA would have produced much larger locality adjustments for 2026 if fully applied [8] [18]. Detailed year‑to‑year purchasing‑power comparisons for specific federal occupations or union contracts are not fully in these extracts; those require union contract texts and locality tables beyond the cited summaries (not found in current reporting).
Bottom line: the 2025 federal pay decision averaged 2.0% and was intentionally modest relative to private‑sector wage gains and many union bargaining outcomes; unions and some analysts view that as insufficient to close a persistent federal‑private gap, while fiscal authorities view it as a necessary tradeoff [1] [3] [5].