The freeze, which doesn't apply to military personnel, would save $2 billion this fiscal year and an estimated $28 billion in the next five years, Obama said.
"I did not reach this decision easily," he said. "These are people's lives. They're patriots who love their country."
Many of the federal government's civilian workers also made "many sacrifices to serve our country," he said. "[But] these are also times where all of us are called on to make sacrifices."
The National Treasury Employees Union disagreed with Obama's announcement, saying it was "very disappointed with the White House's position and intend to explore all of our options, including working with Congress to overturn it," the union's president, Colleen Kelley, said. "The modest 1.4 percent raise under consideration for 2011 is reflective of the average increase in wages in the private sector."
Federal employees perform vital and critical jobs daily for the American people, Kelley said.
"Our government needs to be able to hire and keep talented and skilled employees, and worsening federal pay will make that much more difficult," she said.
House Majority Leader Steny Hoyer, D-Md., said he appreciates what Obama has done, but a pay freeze "would have produced significantly more savings had that sacrifice been shared between federal civilian and military personnel," with an exception for military and civilian employees serving in Afghanistan, Iraq "and anywhere else they are serving in harm's way."
"It would have also added an element of fairness," Hoyer said. "There has been parity between civilian and military pay raises for 22 of the past 28 years in which raises were authorized, and hundreds of thousands of federal civilian employees work alongside military employees in the Department of Defense and other agencies."
Obama said leaders in Washington will have to make additional tough decisions that they've "put off for some time."
He called on Democrats, Republicans and independents to cooperate on unemployment and the economy.
"My hope is that starting today, we can begin a bipartisan conversation about our future, because we face challenges that will require the cooperation of Democrats, Republicans and independents," Obama said. "Everybody's going to have to cooperate. ... We're going to have to budge on some deeply held positions and compromise for the good of the country."
He said he was looking forward to meeting with GOP congressional leaders Tuesday to discuss "the American people's business" that should be wrapped up during the lame duck session, notably Senate ratification of the new U.S.-Russia strategic arms limitation treaty and the fate of tax cuts enacted during George W. Bush's presidency.
"We now have a shared responsibility to deliver to the American people on the issues," he said. "I'm going to be interested in hearing ideas from our Republican colleagues and Democrats on how we can grow the economy and put people back to work."
The Nov. 2 midterm elections, in which Republicans took control of the House and gained seats in the Senate, weren't about whether one school of thought was better than the other, Obama said, saying he was looking forward to a "bipartisan conversation."
"Our ideas may be different, but our goals must be the same," Obama said, that is, securing the U.S. economy and putting people back to work.
"Because if there's anything the American people said this month, it's that they want their leaders to have one single focus: making sure their work is rewarded so that the American dream remains within their reach."