Equal Opportunity:

Reduction in Force Can Sometimes Be More Costly to Agencies Than Attrition and Furlough

PEMD-85-6: Published: Jul 24, 1985. Publicly Released: Jul 24, 1985.

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GAO documented an analysis of the savings and costs of reductions-in-force (RIF) at eight agencies and provided a methodology for other agencies to use to compare the potential fiscal impacts of RIF and attrition when there is a need to reduce staff. Included are assessments of the extensiveness of downgrading resulting from RIF and a detailed analysis of the effects of RIF on the employment status of women and minorities.

GAO found that each RIF examined had a distinctive pattern of savings and costs, downgrading, and consequences for women and minorities; therefore, each prediction would be specific to the agency considering RIF. When budgetary and indirect costs are considered, many RIF were not cost-effective for the agencies when compared to attrition, and net savings were sometimes small enough to make furloughs a reasonable alternative. There were also some positive effects on the civil service retirement system because of the substantial loss of future paid benefits to separated employees; however, early retirements increased costs initially. GAO found that the cost of downgrading employees was one of the highest costs in all RIF since there was a high incidence of post-RIF promotion; therefore, RIF may lead to substantial disruption to agencies as downgraded employees are promoted and others voluntarily leave. Examinations of RIF separations showed large disparities between women and men and between minorities and nonminorities and was higher than if they had left voluntarily. GAO believes that thoroughly examining the comparable savings and costs for attrition and furloughs prior to RIF would provide a stronger basis for choosing alternatives when staffing or budgetary reductions are required.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GAO has received calls from federal agencies planning RIF. Their questions indicate familiarity with the GAO report and possible use of the GAO methodology. More formal actions may not be needed.

    Recommendation: The Office of Management and Budget (OMB) may wish to consider the following strategy or checklist that agencies could use in comparing RIF with attrition and furlough when faced with the need for reducing personnel levels or budgetary expenditures. Although agencies would be unable to make an exact estimate of RIF savings and costs, they could make the calculations necessary to decide between alternatives. Essential to this assessment is being able to calculate attrition rates for specific jobs series and grades. Once an agency decided which positions to abolish, if it had specific data on attrition, it could estimate how long it would take to lose these positions by attrition and how much in salaries a RIF could save compared to attrition. The next step is to calculate the cost items. At this point, an estimate of the budgetary effect of a RIF could be made by subtracting severance pay, lump-sum leave, and contract costs from the previously calculated salary savings. For a picture of the overall affect, the net total can be further refined by examining the cost of downgrading. In order for a RIF to result in a savings, what remains would have to be sufficiently high to cover the costs of processing and administration, appeals and grievances, job-search assistance, and rehiring.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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