Contractors and the True Size of Government

Four out of every ten people who work for the U.S. government are private contractors.

That’s according to a new report by New York University professor Paul Light. Light estimates the true size of the federal government (as of 2015) is 9.1 million government employees, active-duty military personnel, Postal Service workers, and contract and grant employees.

More than 40 percent of the workforce—about 3.7 million people—are contract workers. Light’s analysis shows that contractors have long been the single largest segment of Uncle Sam’s “blended workforce,” accounting for between 30 and 42 percent of that workforce since the 1980s:

His analysis tracks government data showing that the number of federal employees has remained relatively constant since 1951.

Light, one of the foremost authorities on the federal workforce, has long voiced concern about the rapidly growing “shadow government” of contractor employees. In the report, Light wrote that contract employees “work in a hidden bureaucratic pyramid.” While presidential candidates often campaign on a promise to cut the size of the federal government, Light noted these promises often fail to take into consideration the size of the contractor workforce.

Light warned that the blended workforce as a whole “may have grown so large and poorly sorted that it has become a threat to the very liberty it protects.” His dire conclusion: “It may have become so complex that Congress and the president simply cannot know whether this blended workforce puts the right employees in the right place at the right price with the highest performance and fullest accountability.

Professor Light presented his findings today at the National Press Club. Joining him to discuss the significance of his findings were Washington Post columnist Joe Davidson, Project On Government Oversight Executive Director Danielle Brian, and American Enterprise Institute resident scholar Norman Ornstein (who is also on POGO’s Board of Directors).

For many years, POGO has spoken out about the unchecked growth of federal contracting. Light cited one of our seminal works in this area—the 2011 Bad Business report—in his discussion of the various systemic “pressures” compelling the government to hire contractors. One such pressure is the assumption we debunked in Bad Business that contractor employees always cost less than government employees. Periodically, this assumption gains traction in the wake of a pay gap study finding government workers are paid significantly more than workers in the private sector. Every once in a while, POGO feels compelled to explain why such studies are misleading. In a nutshell, those studies do not factor in the cost of hiring private sector employees as government contractors. (Federal News Radio recently published commentary highlighting the other ways pay gap studies are flawed.)

“The explanation is in billing rates, not paychecks,” Light wrote. “Contract employees are less expensive only until overhead—or indirect costs such as supplies, equipment, materials, and other costs of doing business—enter the equation.” Several years ago, the U.S. Army ran the numbers and found that those costs accounted for more than half of what the contractors charged the Army. Around that time, the American Society of Military Comptrollers produced a notable graph of defense workforce costs that tracked expenditures over the previous decade for civilian, military, and contractor personnel. The section of the graph representing contracted services contains the following annotation: “The savings are here. This is Total Force Manpower, but its growth has been unchallenged and often we don’t even know what is in the base.”

That’s why POGO has long advocated for a comprehensive cost analysis model that fosters smarter, more cost-effective decisions regarding the composition and costs of the federal workforce. To this end, we have called for the creation of an advisory panel of experts to evaluate policies and procedures for making hiring decisions. Congress has also taken up this issue: Senator Claire McCaskill (D-MO) held a hearing on this topic in 2012 and pushed the Department of Defense to make more informed workforce decisions.

We commend Paul Light for bringing sunshine to the shadow government. His work will help point the way to a more balanced and effective federal workforce.