Obama and America's Public Sector Plague. Edmund J. McMahon
Table of Contents
THE GREAT RECESSION has been the deepest and most prolonged economic downturn ever experienced by most Americans. From the end of 2007 through 2009, more than 8 million jobs were lost. The national unemployment rate rose to more than 10 percent for the first time in nearly 30 years. Personal incomes and industrial output plunged. For many of those who managed to remain employed, wages stagnated or even declined as bonuses shriveled along with sales and profits.
Yet government employees - at the federal, state, and local levels - were largely spared the worst effects of the recession. On average, they continued receiving pay increases, even while average private sector wages dropped. When conditions were bleakest, hiring trends in America’s private and public sectors were sharply divergent. At the end of 2009, state and local government employment was still nearly 2 percent higher than it had been at the recession’s start in 2007, while private sector employment had dropped more than 7 percent.
In his January 2009 inaugural address, President Barack Obama praised “the selflessness of workers who would rather cut their hours than see a friend lose their job” as an example of what “sees us through our darkest hours.” Obama, however, didn’t expect or ask unionized government workers to imitate their private sector counterparts. Instead, he fought for an economic “stimulus” bill that included $145 billion in state and local aid to forestall austerity measures in the public sector. In the name of promoting economic recovery, the president has been doing his best to subsidize an already wide gap in employee compensation between public and private workers.
As of March 2010, the average hourly wage in the state and local government sector was $26.25, compared with $19.58 in the private sector. Employee benefits - including health insurance, time off, and retirement - were worth an average of $13.56 per hour for state and local government employees, versus $8.15 for private employees. Combined average compensation came to $39.81 per hour for state and local government employees, versus $27.73 for private employees.
To sum it up, state and local employees enjoy a 44 percent hourly pay premium over the people they work for, according to the official data. The actual compensation gap is undoubtedly larger, because public accounting standards understate the value of retirement benefits promised to current public employees, as we’ll see.
State and local employees enjoy a 44 percent hourly pay premium over the people they work for.
The federal government’s roughly 3 million civilian workers had an even larger pay edge. As of 2008, the average federal employee’s compensation package was worth $119,982 a year, double the estimated $59,909 compensation of private workers, according to a study by Chris Edwards of the Cato Institute. Even if the comparison is narrowed to workers with the same education and experience, the federal wage premium alone is still 24 percent, “meaning private employees must work 13½ months to earn what comparable federal workers make in 12,” as researchers Andrew Biggs of the American Enterprise Institute and Jason Richwine of The Heritage Foundation have pointed out.
Like most of their state and local counterparts, federal employees also continued to receive pay raises during the recession. We will focus here mainly on state and local government employees, who are closest to the people who pay their salaries.
Like most of their state and local counterparts, federal employees also continued to receive pay raises during the recession.
State and local government workers have for years enjoyed far more extensive and costly benefit packages than private workers. Eighty-seven percent have health insurance benefits, compared with 71 percent of private employees. Ninety percent of all state and local workers have access to an employer-sponsored retirement plan, compared with just 66 percent of private sector employees. Eighty-four percent of state and local employees have taxpayer-guaranteed pensions, while the vast majority of private workers must rely on their own retirement savings accounts. The un - funded long-term cost of generous public employee benefits - especially pensions - is a mushrooming fiscal threat across the country, as we’ll also see.
To be sure, the public-private pay differential isn’t uniform. It varies by occupation and by region. Across the country, though, government employees generally share an added advantage that money can’t buy: much stronger job security. And the federal stimulus package was expressly designed to reinforce that security.
“STIMULATING ” WHAT?
By the time private employment finally began a sluggish recovery in early 2010, state and local government employment was finally dropping. Under the circumstances, with tax revenues down and the end of supposedly temporary stimulus funding in sight, this was a predictable development. Nonetheless, it set off alarm bells in the White House. The president warned that “if additional action is not taken, hundreds of thousands of additional [government] jobs could be lost.” His solution: Send another $50 billion to state and local governments. In the face of mounting public concern over federal deficit spending, even some congressional Democrats balked at rubber-stamping that request.
Raising the specter of “hundreds of thousands fewer teachers in our classrooms, firefighters on call and police officers on the beat,” Obama’s rhetoric implied that the nation’s schools, firehouses, and police stations were on the verge of being staffed by skeleton crews. The numbers tell a different story. State and local government employment hit an all-time high of 19.8 million jobs in the summer of 2008, eight months after the official start of the recession. By June 2010, after falling about 240,000 jobs from that peak level, the state and local government sector still employed nearly 1.7 million more Americans than it had at the same point in 2000 - a gain of 9 percent during a decade when private employment decreased by a net 3 percent. Even as tax revenues were falling between the end of 2007 and 2009, total state and local government compensation rose by almost 6 percent - half again as fast as private sector compensation and twice the inflation rate.
The White House push for more temporary aid to states was fueled by breathless accounts of large budget gaps and cutbacks in state government employment. One of the national media’s favorite sources on the subject, the Stateline.org Web site run by The Pew Center on the States, reported in the spring of 2010 that 26 states had laid off employees, 22 used furloughs to reduce pay, and 12 cut salaries outright during their 2009-10 fiscal years. Stateline’s summary: “The result of all the broad-based budget cutting, now in its third consecutive year, is that state governments are shrinking.”
In fact, even after those reductions, state governments employed some 22,000 more non-education workers in June 2010 than in June 2000, and nearly 200,000 more than in 1990. The state workforce “shrinkage” has been comparatively small and short-term; from a broader perspective, state payrolls are about as large as they have ever been - even excluding their burgeoning higher-education