2
The Changing External Environment

The recruitment and retention of federal scientists and engineers is constrained by external labor market conditions that affect the supply of and demand for scientists and engineers generally. Several recent factors are affecting the recruiting environment in a major way, such as the end of the Cold War with the collapse of the Soviet Union and a long-lasting recession. The passage of the Federal Employees Pay Comparability Act (FEPCA) in late 1990 had an equally dramatic effect on the internal recruitment and retention situation within the federal government. FEPCA not only provided a process for achieving greater comparability with private-sector pay; it also contained a number of mechanisms for greatly increased flexibility to deal with specific problems as they occur (see Chapter 4). Prior to the passage of FEPCA, the main challenge was to increase the flexibility of the federal personnel system to permit the government to be more competitive in high-wage local labor markets and in attracting and keeping specialized personnel generally.

Today, with the existence of FEPCA and with significant cutbacks in defense and nuclear weapons spending, the challenge is for the departments and agencies to use the flexibilities that have recently become available to create a more effective program of human resources management, including programs affecting scientists and engineers. The internal environment for federal personnel administration, its effects on scientists and engineers, and the potential impact of FEPCA are discussed in subsequent chapters. The rest of this chapter describes the dramatic changes taking place in the external environment for federal recruitment and retention and analyzes the opportunities they present for improving the conditions and effectiveness of the federal science and engineering workforce.



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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government 2 The Changing External Environment The recruitment and retention of federal scientists and engineers is constrained by external labor market conditions that affect the supply of and demand for scientists and engineers generally. Several recent factors are affecting the recruiting environment in a major way, such as the end of the Cold War with the collapse of the Soviet Union and a long-lasting recession. The passage of the Federal Employees Pay Comparability Act (FEPCA) in late 1990 had an equally dramatic effect on the internal recruitment and retention situation within the federal government. FEPCA not only provided a process for achieving greater comparability with private-sector pay; it also contained a number of mechanisms for greatly increased flexibility to deal with specific problems as they occur (see Chapter 4). Prior to the passage of FEPCA, the main challenge was to increase the flexibility of the federal personnel system to permit the government to be more competitive in high-wage local labor markets and in attracting and keeping specialized personnel generally. Today, with the existence of FEPCA and with significant cutbacks in defense and nuclear weapons spending, the challenge is for the departments and agencies to use the flexibilities that have recently become available to create a more effective program of human resources management, including programs affecting scientists and engineers. The internal environment for federal personnel administration, its effects on scientists and engineers, and the potential impact of FEPCA are discussed in subsequent chapters. The rest of this chapter describes the dramatic changes taking place in the external environment for federal recruitment and retention and analyzes the opportunities they present for improving the conditions and effectiveness of the federal science and engineering workforce.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government CHANGES IN THE EXTERNAL RECRUITING ENVIRONMENT Labor markets are dynamic. Some cyclical and structural trends in the economy and changes in the international environment have put the federal government in a better current position to recruit and retain highly desirable scientists and engineers; other conditions and trends, however, may reduce the government's favorable labor market position over the next few years. Favorable Changes Given current conditions, the federal government is in a relatively favorable competitive position for recruitment and retention of scientific and engineering talent for the following reasons: - The economy has been suffering an unusually long recessionary period, and it is unclear when the economy will emerge from this condition of relative stagnation. The current recession has reduced private-sector opportunities. Consequently, turnover among federal employees has declined. For example, there were fewer than 30,000 voluntary quits among federal white-collar employees during the first three quarters of 1991, compared to more than 42,000 during the same time period in 1989, a reduction of 30 percent (Priest, 1991). The turnover rate among senior-level executives has dropped from 8.5 percent to 3 percent.1 At the same time, the number of openings has also shrunk, from the usual 140,000 to about 100,000. In the short run, then, cyclical factors, along with 1   The current turnover rate among Senior Executive Service (SES) and other federal personnel is lower in part because of a poor job market. This leads to fewer voluntary resignations. It is also probably lower because some incumbents eligible to retire are staying in a few years more. The sharp increases in SES pay beginning in 1990 provide a strong incentive to postpone retirement, because retirement income is based on the average of one's pay during the last three years of employment in the civil service.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government higher pay levels after FEPCA was passed in late 1990, have made the federal government a more attractive employer. - Independent of the business cycle, the private sector has for some years been engaged in downsizing activities in an effort to remain competitive in world markets. These activities can be expected to continue and will tend to dampen any future growth in demand that might occur when the economy emerges from its current doldrums. These long-term structural adjustments in the economy tend to reduce the private-sector demand for skilled personnel, and they provide the government with an opportunity to be more competitive in the labor market. However, if the private sector and the government increase investment in research and development to meet the challenge of international economic competition, the demand for highly qualified researchers may increase. - Similarly, academic labor markets are currently sluggish. Faculty openings are scarcer, and relatively fewer new Ph.D.s—especially in the physical sciences—are able to secure employment (McClure, 1991; Czujiko and Silbernagel, 1991). According to the American Mathematical Society, 12 percent of new Ph.D. mathematicians were unemployed in September 1991, more than double the percentage the year before (Connors, 1991). The American Chemical Society found that 11 percent of new Ph.D. chemists were unemployed (Burrelli, 1991). A survey by the American Institute of Physics found that 1990 physics graduates took longer to find jobs, unemployment was higher, and median monthly starting salaries for Ph.D.s had fallen 5.0 percent, from $3,770 to $3,580 (Ellis and Mulvey, 1990, 1991).2 2   The median monthly starting salary for those who took government jobs increased 7.8 percent, however, from $3,330 to $3,590.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government - As the military threat to the United States lessens and changes, there will be less need for scientists and engineers in some defense areas. The breakup of the Soviet Union is changing and reducing United States defense requirements. The armed services have plans to cut personnel levels about 25 percent, and the approximately 100,000 scientists and engineers in the Department of Defense (DOD) are not exempt from those cuts. Concerns about the recruiting and retention problems caused by the large defense buildup of the 1980s are being replaced by concerns about how to retain the best scientists and engineers in the face of seniority rules and how to recruit top entry-level scientists and engineers in program areas that are expanding. Overall, however, the downsizing of the defense establishment puts the federal government in a relatively favorable recruiting situation in the short term. For example, defense cuts and the reduced demand for scientists and engineers in developing, testing, and maintaining weapons systems, not only in the DOD but also among defense contractors, raise the question, could the surplus scientists and engineers be retrained to work in high-priority federal programs such as environmental cleanup and restoration? At the same time, could DOD and the defense programs in the Department of Energy (DOE) be more successful in holding on to outstanding scientists and engineers who ordinarily would have been lost to the private sector? Economic conditions thus place the federal government in a more favorable position today than in the 1980s to compete for highly qualified scientists and engineers and keep experienced federal scientists and engineers who otherwise might leave for higher-paying jobs in the private sector. This provides an opportunity for the government to improve the quality and effectiveness of its science and engineering workforce.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government Undermining Trends Future conditions may operate to undermine this favorable position, however, for the following reasons: - Long-range projections of total requirements for scientists and engineers indicate further substantial growth. Despite long-term structural adjustments in the national economy, the National Science Board predicts that requirements for scientists and engineers will grow at above-average rates. Average annual growth in science and engineering employment is projected to be 2.4 percent between 1988 and 2000, compared to 0.7 percent for the total workforce (NSB, 1989: Appendix Table 3-1). The projections of the Bureau of Labor Statistics are similar (Braddock, 1992; Silvestri and Lukasiewicz, 1991). - The number of experienced scientists and engineers who will be retiring from the federal workforce is expected to increase dramatically in the 1990s. This set of factors involves the aging of the federal science and engineering workforce. The median age of federal workers fell during the 1980s but is still relatively high, 41 years compared with 36 years among nonfederal workers (OPM, 1988a:20). Currently, the largest age cohort is the 36-to 40-year-old group. Most of this bulge of ''baby boomers'' is under the civil service retirement system and not eligible to retire without substantial penalties until age 55. In its study of the civil service, the Hudson Institute predicts a "retirement explosion" beginning in 2002 (OPM, 1988a:20). Among some federal science and engineering workforces, however, the age profile is quite different. They are skewed toward the under-35 and over-44 age groups, with relatively few scientists and engineers in between. As a result, agencies such as the National Aeronautics and Space Administration (NASA) may lose many of their most experienced scientists and engineers during the 1990s before younger staff are ready

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government to take their place (U.S. Congress, 1989). The General Accounting Office (GAO) studied the situation and was reassured that few of the 29 percent of scientists and engineers eligible to retire through 1995 plan to do so immediately (GAO, 1991). The GAO report concluded that labor market adjustments would be adequate to replace NASA's senior technical workforce, given projected retirement plans, but it noted that those plans could change depending on events. As noted above, the state of the economy is another factor reducing retirement rates among eligible civil servants now. For one thing, a federal employee's retirement pay depends on an average of the last three years of active pay, and it is said that some have postponed retirement to take advantage of the higher pay raises mandated by FEPCA over the 1991–1993 period. Over the long run, the new Federal Employees Retirement System (FERS) may increase early retirement among senior-level employees, because, unlike the old civil service retirement system (CSRS), FERS is portable. Under CSRS, anyone who leaves federal employment early cannot draw pension benefits until age 62, and those benefits are likely to be seriously eroded by inflation, because they are based on the salary that the employee earned just before leaving government service. Employees under FERS, however, will have substantially smaller disincentives to leave the government before retiring. FERS employees who reach 10 to 20 years of service in the 1994–2004 period are expected to resign at higher rates than CSRS employees, although the magnitude of this effect is unknown (MSPB, 1989b: 13; OPM, 1988:31). On the other hand, portability may make it easier to recruit senior-level people from outside the federal government. - The pool from which new scientists and engineers are recruited is shrinking and will continue to decline until the mid-or late 1990s, and the fraction of that pool expressing interest in careers in science and engineering is declining. The number of scientists and engineers in the supply pipeline has been falling, which means that the long-term competition for the shrinking number of highly qualified scientists and engineers could

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government increase unless private-sector demand grows less strongly than predicted or there are major supply adjustments. The overall number of 18-year-olds is projected to decline from about 4.1 million in the early 1980s to a low of 3.3 million in 1992, before increasing again to 3.8 million by 2000 (Bureau of the Census, 1990; 1989). The percentage of this shrinking cohort going to college that plans to major in the natural sciences or engineering has also declined, from a peak of 23.2 percent in 1982 to 17.4 percent in 1990 (the low was 17.1 percent in 1988). The number of science and engineering bachelor's degrees increased until 1986, but fell sharply in 1987 and 1988 (NSB, 1991:49). Extrapolating from past relationships between science and engineering degree production and freshman intentions suggests that the long-term decline in the proportion of natural science bachelor's degrees will turn around about 1991 and declines in engineering and computer science degrees will begin to recover about 1992. Meanwhile, the expected decline in supply of scientists and engineers with advanced degrees could be offset by various market adjustments, of course, such as an increase in the proportion of science and engineering majors, reentry of workers with science and engineering training now working outside the science and engineering labor markets, greater use of foreign nationals, and conversions of scientists and engineers from fields with less demand, such as defense engineering, to growing fields, such as environmental protection. Will the federal government be ready to take advantage of these adjustments? - The academic labor market is expected to revive in the mid-or late 1990s (Bowen and Sosa, 1989). The number of 18-to 22-year-olds will start to increase in the mid-1990s, and they are expected to attend college at a higher rate than in the past, due to higher incomes and smaller family size (Finn, 1991:25). If they enroll in science and engineering courses, the academic labor market will experience an upturn in demand for scientists and engineers by the mid-1990s.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government - It is reasonable to expect the period of economic stagnation to have ended by the mid-or late 1990s. Although current economic conditions are relatively favorable for recruitment and retention of federal scientists and engineers, the recession is only a temporary condition. When the economy starts growing again, the government will be competing for scarce talent again. It is not too early, therefore, for the departments and agencies to begin to develop a personnel program taking advantage of useful pay flexibilities authorized by FEPCA. CHALLENGES AND OPPORTUNITIES To carry out its various missions, the federal government directly employs more than 200,000 scientists and engineers. Although turnover rates have been relatively low, they increased during most of the 1980s. Nearly 10,000 scientists and engineers (4.9 percent) left the federal government for one reason or another during 1987. Also, at any given time, the government is competing with the private sector for additional talent in certain growth areas. In recent years, hard-to-hire scientists and engineers have included computer scientists, electrical engineers, specialists in artificial intelligence, health physicists, and environmental and safety engineers. Competition is expected to increase, because of an increased rate of retirement from the civil service and a smaller pool of qualified scientists and engineers in the labor force. Increasing turnover rates and problems in recruiting certain specialties and in high-wage areas were attributed mostly to the widening gaps between federal and private-sector salary levels. These were caused in part by a nationally uniform pay schedule that meant that even when average federal pay was comparable with average private-sector pay at the national level, federal pay levels were too low in some local labor markets (and too high in some others). This problem was exacerbated by the failure of federal pay to remain comparable after 1978, which meant that eventually federal pay levels were too low in virtually every locality. This committee reviewed the situation in 1989 and early 1990. We concluded that there were spot recruitment and retention problems

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government affecting specific agencies, occupations, and localities (Campbell and Dix, 1990). At that time, we urged further investigation of mechanisms for increasing the government's flexibility to respond to spot problems, such as those being employed in personnel management demonstration projects sponsored by the Office of Personnel Management. Subsequently, the committee was asked to conduct a second-phase investigation of such mechanisms. By the time we met again in late 1990, however, the situation had changed greatly. The collapse of communism in the Soviet Union and Eastern Europe and the end of the Cold War set the stage for significant cutbacks in defense and nuclear weapons programs, thus significantly reducing the overall demand for the 70 percent of federal engineers and 32 percent of federal scientists employed by DOD and DOE. FEPCA inaugurated a process for achieving near pay comparability in each locality and also authorized the use of many of the flexibility mechanisms being used in the demonstration projects. Assuming that the pay gap is on its way to being closed (which is not, however, assured), the federal government is faced with new challenges and new tools for meeting them. The challenge two years ago was to increase the flexibility of the government's personnel system. FEPCA adds a great deal of flexibility, and the challenge today is to take advantage of the resulting opportunities it provides to improve the quality and effectiveness of scientists and engineers and other professional talent employed in the government. As a result of defense budget cutbacks, DOD is planning to "draw down" its workforce by about 25 percent. The United States can reduce the force structure in response to the decrease in defense requirements, but it will need to be ready to build it up again if the situation in the former Soviet Union or Eastern Europe deteriorates (Carnegie Commission, 1990:9–10). The United States also faces a greater potential for military conflict in the rest of the world. DOD plans to respond to these changing conditions by relying more heavily on its defense technology base, much of which is conducted or administered by scientists and engineers in the DOD laboratories. This means that the labs will need to add new types of expertise at the same time they are reducing the overall size of their workforces. DOE is also cutting back its nuclear weapons activities, but is greatly expanding its environmental cleanup

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government efforts to deal with the aftermath of years of nuclear weapons production. New personnel needs can be met to some extent by retraining scientists and engineers no longer needed in other areas, but the situation will probably require at least some hiring from the outside. In conclusion, the federal government today is in a better position to take advantage of the opportunities afforded by reduced demand, budget cutbacks, and FEPCA to plan and manage a higher quality science and engineering workforce that can more effectively meet the needs of each department and agency. The next chapter describes the origins and lessons of the personnel management demonstration projects, which were developed largely to deal with the problems of recruiting and retaining scientists and engineers in the federal personnel system. The fourth chapter reviews the features of FEPCA, makes recommendations aimed at its effective implementation, and analyzes the opportunities the new legislation provides to solve recruitment and retention problems. The committee's recommendations for using FEPCA and other flexibilities to address recruitment, retention, and utilization problems in a comprehensive and coordinated way are presented in Chapter 5.