• The General Schedule (GS) is a worldwide pay system that covers more than 1.5 million employees.

• The GS pay schedule has 15 grades and 10 steps in each grade covering more than 400 occupations. Pay varies by geographic location.

• The law requires a two-part GS pay adjustment in January each year with pay adjustments based on surveys conducted by the U.S. Bureau of Labor Statistics (BLS).

• Based on legal requirements, BLS conducts locality pay surveys in geographic areas designated by the President's Pay Agent as locality pay areas, with survey data representing non-Federal salaries (including State and local) at distinct levels of work.

• Since a distinct work-level to work-level pay comparison is required, beginning pay rates for GS jobs must be compared to beginning pay rates for non-Federal jobs at the same level of work, etc.

• In the locality pay program, Federal pay is compared to non-Federal pay for the same levels of work. The results of such pay comparisons can be found in annual recommendations of the Federal Salary Council and in annual reports of the President’s Pay Agent.

NCS/OES Model

The Bureau of Labor Statistics (BLS) uses National Compensation Survey (NCS) data to assess the impact of level of work on occupational earnings, and applies factors derived from the NCS sample to occupational average salaries from Occupational Employment Statistics (OES) data to estimate occupational earnings by level of work in each locality pay area. This measurement process is called the NCS/OES Model.

To calculate estimates of pay disparities, the Pay Agent asks BLS to calculate annual wage estimates by area, occupation, and grade level. These estimates are then weighted by National Federal employment to arrive at wage estimates by broad occupation group and grade for each pay area. There are five broad occupational groups collectively referred to as “PATCO” categories: Professional (P), Administrative (A), Technical (T), Clerical (C), and Officer (O).

OES data provide wage estimates by occupation for each locality pay area, but do not have information by grade level. The NCS has information on grade level, but a much smaller sample with which to calculate occupation-area estimates. To combine the information from the two samples, a regression model is used. The model assumes that the difference between a wage observed in the NCS for a given area, occupation, and grade level, and the corresponding area-occupation wage from the OES, can be explained by a few key variables, the most important of which is the grade level itself. The model then predicts the extent to which wages will be higher, on average, for higher grade levels. It is important to note that the model assumes the relationship between wages and levels is the same throughout the Nation. While this assumption is not likely to hold exactly, the NCS sample size is not large enough to allow the effect of grade level on salary to vary by area.

Once estimated, the model is used to predict the hourly wage rate for area-occupation-grade cells of interest to the Pay Agent. This predicted hourly wage rate is then multiplied by 2,080 hours (52 weeks X 40 hours per week) to arrive at an estimate of the annual earnings for that particular cell. The estimates from the model are then averaged, using Federal employment levels as weights, to form an estimate of annual earnings for PATCO job family and grade for each area.

Calculating Pay Disparities Using the NCS/OES Model

Because 5 U.S.C. 5302(6) requires that each local pay disparity be expressed as a single percentage, the comparison of GS and non-Federal rates of pay in a locality requires that the two sets of rates be reduced to one pair of rates, a GS average and a non-Federal average. An important principle in averaging each set of rates is that the rates of individual survey jobs, job categories, and grades are weighted by Federal GS employment in equivalent classifications. Weighting by Federal employment ensures that the influence of each non-Federal survey job on the overall non-Federal average is proportionate to the frequency of that job in the Federal sector.

A three-stage weighted average is used in the pay disparity calculations. In the first stage, job rates from the NCS/OES Model are averaged within PATCO category by grade level. The NCS/OES Model covers virtually all GS jobs. The model produces occupational wage information for jobs found only in the OES sample for an area. For averaging within PATCO category, each job rate is weighted by the Nationwide full-time, permanent, year-round employment in GS positions that match the job. BLS combines the individual occupations within PATCO-grade cells and sends OPM average non-Federal salaries by PATCO-grade categories. The reason for National weighting in the first stage is explained below.

When the first stage averages are complete, each grade is represented by up to five PATCO category rates in lieu of its original job rates. Under the NCS/OES Model, all PATCO-grade categories with Federal incumbents are represented, except where BLS had no data for the PATCO-grade cell in a location.

In the second stage, the PATCO category rates are averaged by grade level to one grade level rate for each grade represented. Thus, at grade GS-5, which has Federal jobs in all five PATCO categories, the five PATCO category rates are averaged to one GS-5 non-Federal pay rate. For averaging by grade, each PATCO category rate is weighted by the local full-time, permanent, year-round GS employment in the category at the grade.

In the third stage, the grade averages are weighted by the corresponding local, full-time, permanent, year-round GS grade level employment and averaged to a single overall non-Federal pay rate for the locality. This overall non-Federal average salary is the non-Federal rate to which the overall average GS rate is compared. Under the NCS/OES Model, all 15 GS grades can be represented.

Since GS rates by grade are not based on a sample, but rather on a census of the relevant GS populations, the first two stages of the above process are omitted in deriving the GS average rate. For each grade level represented by a non-Federal average derived in stage two, we average the scheduled rates of all full-time, permanent, year-round GS employees at the grade in the area. The overall GS average rate is the weighted average of these GS grade level rates, using the same weights as those used to average the non-Federal grade level rates. Finally, the pay disparity is the percentage by which the overall average non-Federal rate exceeds the overall average GS rate.

As indicated above, at the first stage of averaging the non-Federal data, the weights represent National GS employment, while local GS employment is used to weight the second and third stage averages. GS employment weights are meant to ensure that the effect of each non-Federal pay rate on the overall non-Federal average reflects the relative frequency of Federal employment in matching Federal job classifications.

The methodology employed by the Pay Agent to measure local pay disparities does not use local weights in the first (job level) stage of averaging because this would have an undesirable effect. A survey job whose Federal counterpart has no local GS incumbents will “drop out” in stage one and have no effect on the overall average. For this reason, National weights are used in the first stage of averaging data. National weights are used only where retention of each survey observation is most important---at the job level or stage one. Local weights are used at all other stages. See Calculation of the Washington-Baltimore Pay Disparity as an example.

Geographic Boundaries of Locality Pay Areas

Locality pay areas consist of (1) a main metropolitan area defined by the Office of Management and Budget (OMB) and forming the basic locality pay area and, where criteria recommended by the Federal Salary Council and approved by the President’s Pay Agent are met, (2) areas of application. Areas of application are locations that are adjacent to the basic locality pay area and meet approved criteria for inclusion in the locality pay area. These building blocks of locality pay areas are further discussed below.

The OMB-defined metropolitan areas comprising basic locality pay areas are called combined statistical areas (CSAs) and metropolitan statistical areas (MSAs). The Federal Salary Council recommended and the President’s Pay Agent approved using CSAs and MSAs as the basis for locality pay area boundaries because CSA and MSA boundaries are defined based on important labor market factors, including commuting rates, population size, and population density.

In developing methods for defining the geographic boundaries of locality pay areas, the Council and Pay Agent were mindful that some locations adjacent to a basic locality pay area should be included in the locality pay area. The Council recommended and the Pay Agent approved the current criteria used to evaluate adjacent counties in a consistent fashion. Counties meeting those criteria are called areas of application.

Current criteria for adding adjacent core-based statistical areas (CBSAs) or single counties to locality pay areas as areas of application are:

• For a CBSA (includes single-county CBSAs other than single-county micropolitan areas) adjacent to a basic locality pay area: an employment interchange rate of at least 7.5 percent with the basic locality pay area.
• For a county that is not part of a CBSA or comprises a single-county micropolitan area and is adjacent to a basic locality pay area: an employment interchange rate of at least 20 percent with the basic locality pay area.
• For a county that is adjacent to multiple locality pay areas and does not meet the 20 percent employment interchange threshold with respect to any single locality pay area: a sum of employment interchange rates of at least 20 percent with the adjacent basic locality pay areas. Such a county would be added to the locality pay area with which it has the greatest degree of employment interchange.

Criteria for evaluating Federal facilities that cross county lines into a separate locality pay area are:

• For Federal facilities that cross locality pay area boundaries: To be included in an adjacent locality pay area, the whole facility must have at least 500 GS employees, with the majority of those employees in the higher-paying locality pay area, or that portion of a Federal facility outside of a higher-paying locality pay area must have at least 750 GS employees, the duty stations of the majority of those employees must be within 10 miles of the separate locality pay area, and a significant number of those employees must commute to work from the higher-paying locality pay area.