This actually underestimates the divergence between the private and the public. Last month, the BLS reported that its annual benchmarking of salaried employment numbers against unemployment insurance tax records showed private sector employment was about 571,000 higher than reported in last March and that government employment was 109,000 lower. These numbers won’t be finalized and incorporated into the monthly employment data until January, so just know that the government job cuts are even bigger than those shown in the graphs here. As currently reported, job losses were all in state and local government, with federal employment increasing very slightly. (The short-lived increase in government employment in the second half of 2020, apparent in the chart above, was for federal census temporary jobs only.)
Most of those job losses came early in the pandemic, when state and local income tax and sales revenues plummeted and elected officials feared they would continue to decline. Instead, both rebounded quickly while property taxes, the other main source of state and local revenue, were never hit hard. The $513 billion in seasonally adjusted state and local government revenue in the first quarter of this year is 17% higher, adjusted for inflation, than in the fourth quarter of 2019.
So it’s not like state and local governments have to downsize. But even before the pandemic, government agencies were struggling to retain workers and hire new ones in the face of stiff competition from private employers, and in July there were 1.1 million job openings at levels local, state and federal – nearly double the number just five years ago.
Public school teacher shortages have received the most attention, but local governments are also struggling to hire enough police, firefighters, paramedics, garbage collectors and others. Labor “shortages” are, of course, usually an indicator that wages are not high enough, but governments have less flexibility than private employers to adjust wages and benefits to changing labor market conditions. A recent survey by the MissionSquare Research Institute of state and local government human resources staff found that only 44% believed the salaries they offered were competitive with the broader labor market. work. In 2016, the first year the survey was conducted, 61% did. These are jobs that during the pandemic have often been particularly dangerous and stressful, diminishing their appeal compared to many jobs in the private sector.
Health and retirement plans are another matter, with 85% of respondents saying the benefits offered by their states or localities were competitive. But pension plans that don’t kick in for decades and often aren’t portable between jobs may be less attractive than they once were, given that early layoffs of the pandemic and during and after the Great Recession have made it clear that state and local government jobs are not necessarily forever.
This Great Recession pullback marked a turning point for state and local government employment, which peaked as a share of nonfarm wage employment in the mid-1970s but has remained more or less flat since then. until around 2010. Here is employment at the three levels of government as a percentage of non-farm payrolls, which peaked at 19.4% in July 1975 and fell to 14.6% in August – about where it stands was in the summer of 1957. Interruptions in this decline are mainly due to recessions, when private employment tends to decline faster than public employment.
The federal government is the smallest of the three in terms of employment and has followed a different trajectory than the other two. Its relative size peaked during World War II, fell by more than 50% from 1957 to 2000, and has remained more or less stable since (small peaks every 10 years are for censuses).
In numbers rather than percentages, federal employment excluding the U.S. Postal Service was 2.3 million in August and has been in that general vicinity since the late 1960s. The Postal Service, which I have excluded here because the non-postal workforce seems to better reflect what we mean when we talk about the federal government, employed 600,000 people in August, down from a peak of just over 900,000 in 1999. The military on active duty are not included in the BLS jobs data, and if they were, the drop shown above would be much steeper – there are about 1.3 million now, down from 2.8 million in 1957 and 3.5 million in 1968. Intelligence agencies are not included either, but with an estimated employment of around 100,000 they would not have much impact.
Also missing are the many nonfederal employees whose paychecks are funded by federal dollars, but Paul C. Light, a professor at New York University’s Wagner Graduate School of Public Service, produces estimates of their numbers. He’s quite confident in the contractor totals, which are calculated from detailed government procurement inventories, but says there’s “a bit more squish” in the grant and job estimates.
Increased defense spending means more government contractors, which mainly explains the ups and downs in the chart, as defense spending increased a lot under the administrations of Ronald Reagan, George W. Bush, and Donald Trump, fell under those of Bill Clinton and Barack Obama, and was close to flat during the presidency of George HW Bush. Depressed private sector employment totals during or following recessions reduced the denominator and thus increased the percentages in 2010 and again in 2020 and 2021, but even with this, total federal employment during in fiscal year 2021 was smaller relative to overall employment than in the 1980s and early 1990s, and likely smaller than in previous decades.
Yet by this metric, federal employment is almost as important as local government employment, some of which is funded by federal grants, and is significantly higher than it was 20 years ago. But is it too high? Too low?
Interestingly, the long decline in public employment as a share of total employment coincided with an era of general dissatisfaction with government, although I’m not sure of the cause and effect (probably a bit of both). Federal spending hit a peacetime record of 31.3% of gross domestic product in fiscal year 2020, so it’s not like the government has stepped down in that direction. Washington’s regulatory reach hasn’t exactly shrunk either – the Federal Register, where new regulations are published, had twice as many pages in 2021 as it did in 1978. But that may be the problem: we ask government to do more without hiring enough people to do it right.
More writers at Bloomberg Opinion:
• Your Guide to the Permanent Pandemic Economy: Allison Schrager
• This labor market exodus is a statistical mirage: Justin Fox
• Booming labor market favors soft landing: Conor Sen
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. Former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market”.
More stories like this are available at bloomberg.com/opinion