"Government is not a solution to our problem; government IS the problem." —Ronald Reagan
Candidate Reagan popularized that saying on the presidential campaign trail in 1980, when the United States government employed nearly 2.9 million civilian personnel. As he left office eight years later, after two terms, the anti-government crusader was overseeing that federal work force of … more than 3.1 million.
So the concept of right-sized government has long been in the eye of the beholder. Defying political stereotypes through ensuing administrations, the federal civilian payroll shrank throughout most of Democrat Bill Clinton’s two terms. It dipped to less than 2.7 million early in the first term of Republican George W. Bush, then began a steady climb back up after 2002. Now, against the backdrop of federal program spending on an unprecedented scale, public-sector compensation is setting off alarms.
When national media outlets like USA Today and McClatchy Newspapers start printing stories that question the comparatively lucrative nature of federal pay and benefits packages, as they have in recent months, you know the issue has gone mainstream. Libertarian think tanks, conservative talk radio stations and proudly socialist Web sites alike are all engaged in roiling debate about the appropriate size of—and compensation levels for—the public-sector work force.
But regardless of which side of the debate resonates most with you, disagreements over federal payrolls miss the true mark when it comes to growth of public-sector employment. The vast majority of government employment growth, according to federal statistics, has taken place not in Washington. It’s in the Statehouse, the County Courthouse and at City Hall.
A Warning Signal?
That trend has dire implications for the nation’s business climate, says Dave Trabert, president of the Wichita-based Kansas Policy Institute, which advocates for free-market public-policy principles.
“You go back to the basic economic principle of scarcity of resources,” Trabert said. “Everybody has limited amounts of resources, individuals or businesses, and every dollar you have to spend on taxes is a dollar you cannot spend on something else—goods, services, employees.”
In large part because of recession-driven layoffs since 2008, total employment nationally was up only 6.2 percent between
2000 and 2009. At the same time, public-sector employment in the U.S.—fueled by increases in workers below the federal
level—grew half-again as fast, an increase of more than 9 percent, according to statistics from the Bureau of Labor Services.
Even in the comparatively conservative Midwest, neither Kansas nor Missouri has been an exception to the trend. Kansas, in particular, now exceeds the 14.11 percent national average of public-to-private sector employment; 15.8 percent of the people working in that state are in the public sector. And Missouri, while leaner than the nation as a whole at 12.8 percent public employment, is trending upward with that segment of its work force, notwithstanding recent layoffs issued from Jefferson City.
The bottom line? In the two-state region, as with the the nation, one worker in seven earns a paycheck thanks largely to what’s taken from the earnings of six others.
Unsustainable Track
That government employment growth arc, Trabert says, is not just unsustainable, it’s something that should have the attention of every business owner whose revenues help foot the bill for those public-sector jobs.
“A lot of this comes down to choices” on the policy end, he said. “What’s the Number One thing we need to accomplish? These days, it’s job creation. Whether you’re implementing or extending a program, it comes down to how you fund it and the question of what is the long-term or short-term impact on job creation.”
Jim Heeter, CEO of the Greater Kansas City Area Chamber of Commerce, acknowledged potential risks to business in the long term, but doesn’t see things reaching a crisis point.
“Theoretically, it could be a problem for private-sector employers” if the compensation gap continues to widen, Heeter said, “but I have a strong belief that before it would become a real problem, it would find its own equilibrium, both in the public and private sectors.”
Indeed, there are signs that government offices are beginning to respond to revenue shortfalls the way businesses always have, by tightening costs through staffing reductions and operational cuts. But if we’re to achieve anything close to the equilibrium that Heeter suggests, something far more dramatic will have to take place in the public sector, given the surge in compensation that’s taken place there over the past decade.
The Scales Tilt
Public-sector jobs have long been perceived as something of a trade-off with employment in corporate America. In exchange for generally lower salaries, government was able to offer more job stability and more generous benefits packages—the famed “golden handcuffs” that have kept public-sector turnover rates at roughly one-third of those in the private sector, according to the BLS.
But incremental changes over the past decade, compounded by a blockbuster shift in the makeup of the private work force after the recession-driven layoffs since 2008, have altered the compensation calculus.
Chris Edwards, director of tax policy studies for the libertarian Cato Institute, triggered much of the current back-and-forth with a Web examination of federal compensation last August, and a follow-up piece on state and local government workers earlier this year. His work cited BLS and other federal statistics that show an average compensation package—salary and benefits—of $119,000 for federal employees, slightly more than twice the value of the average private-sector package. (For his work, he notes, he is rewarded with hundreds of e-mails from outraged federal employees every time another news organization references his analysis: “It makes me wonder whether they have nothing better to do than sit around reading stories that question whether they’re overpaid,” he wisecracks.)
State and local compensation, by comparison, has not been as lucrative as federal work by historical standards, but there is evidence that those compensation levels have tilted dramatically, as well. Again, according to the BLS, average total compensation for state and local level public-sector employees was $39.66 an hour as of June 2009—45 percent higher than the private-sector hourly average of $27.42.
Even more generous, the same BLS data showed, were state and local programs for paid leave (1.7 times the private-sector compensation), health insurance (2.18 times private-sector levels) and especially defined-benefit pension programs, which were nearly seven times as lucrative as private-sector plans.
Whether the work is federal, state or local, critics of current public-sector compensation structures argue that lack of a true bottom-line imperative contributes to disparities with private-sector pay. Governments, they argue, are not subject to the same kinds of market-driven cost-control pressures that are everyday issues in the private sector.
Worth noting: Edwards’ work was based on changes in federal employment from 2000 to 2008, before massive layoffs began to propel the nation’s unemployment rate past the 10 percent mark. And his work doesn’t include the effect of the federal stimulus money that went to help preserve public-sector jobs at the local level, such as teaching positions.
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