Private versus Public Sector Employment and Compensation


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Executive Summary


Estimating private sector productivity is easier than estimating government productivity. In the private sector, productivity is the sum of all goods and services (as measured by Gross Domestic Product) divided by the number of workers. In the public sector, however, there is no reliable measure on the value of “goods and services” received because prices are not set on a voluntary basis. Rather, elected legislatures determine taxes that citizens pay to fund government.


Unfortunately, citizens have no direct way to judge whether they are getting their “bang for the buck” for the goods and services the public sector provides. The data and analysis shown below provides an indirect way to better understand the productivity of the public sector by examining government employment and compensation levels and ratios over time and across the 50 states.


The basis of comparison is the examination of the ratio of government jobs and compensation relative to the private sector. For any given state the ratios are compared to the national average. There is nothing magical about the national average; however, since it represents an amalgam of 50 states, one can reasonably assume that being above the national average indicates “low productivity” among the state government’s workforce and vice-versa.


The first productivity metric to examine is employment levels. In 2013, state and local government employed 16.4 people for every 100 people employed by the private sector—hereafter referred to as the “employment ratio.” The state with the highest employment ratio was Wyoming (28.2) while the state with the lowest employment ratio was Nevada (12.5).


The second productivity metric to examine is compensation levels. In 2013, state and local government compensation was $67,664 per job while private sector compensation was $60,043 per job. As a result, the average state and local government job paid 13 percent higher than the average private sector job—hereafter referred to as the “compensation ratio.” The state with the highest compensation ratio was Nevada (51 percent) while the state with the lowest compensation ratio was North Dakota (-12 percent).


More specifically, compensation is comprised of two components. The first part is the wage or salary paid to the employee for services rendered. In 2013, state and local wages and salaries paid were $46,157 per job while private sector wages and salaries were $550,123 per job. As a result, the average state and local government job paid wages and salaries that were -7.9 percent lower than the average private sector job—hereafter referred to as the “wages and salaries ratio.” The state with the highest wages and salaries ratio was Rhode Island (15 percent) while the state with the lowest wages and salaries ratio was North Dakota (-24 percent).


The second part is benefits, such as health insurance and retirement, which are paid in addition to a wage or salary. In 2013, state and local government benefits were $21,508 per job while private sector benefits were $9,920 per job. As a result, the average state and local government job paid benefits that were 117 percent higher than the average private sector job—hereafter referred to as the “benefits ratio.” The state with the highest benefit ratio was Nevada (273 percent) while the state with the lowest benefit ratio was Colorado (29 percent).


Overall, while circumstances vary by state, state and local government workers are generally not overpaid when it comes to wages and salaries. Benefits, however, are a very significant concern. In the long run, taxpayers would appear to be better off paying workers higher wages and salaries in exchange for benefit reform--such as moving away from the current defined benefit system toward a 401(k)-style defined contribution system.


Finally, policymakers and taxpayers should be aware that another way to solve these challenges is to grow the private sector boosting both income and employment. Policymakers must pursue pro-growth economic policies—such as fewer regulations, lower taxes, and secure property rights—that will promote economic development allowing private sector businesses to better compensate and hire additional employees. Such policies are a win-win for both the private and public sectors.


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Introduction


According to the U.S. Department of Commerce’s Bureau of Economic Analysis, in 2013, state and local governments employed 19,151,650 people (full and part time), or 16.4 percent of all private employment. Of the total, state government employed 5,259,920 people and local governments employed 13,891,730 people. In the aggregate, they were paid $1,295,886,085,000 in total compensation, or 15.7 percent of private earnings (wages and salaries plus benefits).


However, aggregate statistics are not very useful when it comes to informing public policy. Rather, policymakers need relative metrics to judge whether or not a particular state has too many government employees or if they are paid too much, i.e., by their level of productivity. As such, this study explores various private versus public sector ratios, namely employment and compensation ratios, over time and across states.

 

State and Local Government Employment Ratio


The state and local employment ratio is derived by dividing state government employment by private employment. In 2013 the average U.S. state and local government employment ratio was 16.4 meaning 16.4 people worked for state and local government for every 100 people employed by the private sector.

 

Chart 1 shows that Wyoming has the highest state and local government employment ratio at 28.2 people for every 100 people employed by the private sector--followed by New Mexico (25.8), Alaska (24.8), Mississippi (24.8), and Oklahoma (22). On the flip side, Nevada had the lowest state and local government employment ratio at 12.5 for every 100 people employed by the private sector--followed by Pennsylvania (12.7), Massachusetts (13), Rhode Island (13.1), and Florida (13.8).


Chart 1 State and Local Government Employees per 100 Private Sector Employees Rank 2013.jpg

 

State and Local Government Compensation Ratio


The state and local compensation ratio is derived by dividing state and local government compensation per job by private sector compensation per job. In 2013, state and local government compensation was $67,664 per job while private sector compensation was $60,043 per job. As a result, public sector compensation was 13 percent higher than private sector compensation.



Chart 2 shows that Nevada has the highest state and local government compensation ratio at 51 percent--followed by Rhode Island (37 percent), Alaska (32 percent), California (31 percent), and New York (25 percent). On the flip side, North Dakota has the lowest state and local government compensation ratio at -12 percent--followed by Kansas (-9 percent), Colorado (-6 percent), Texas (-5 percent), and Virginia (-3 percent).


Chart 2 State and Local Government Compensation as a Percent of the Private Sector Rank 2013.jpg


State and Local Government Wages and Salaries Ratio


The state and local wages and salaries ratio is derived by dividing state and local government wages and salaries per job by private sector wages and salaries per job. In 2013, state and local government wages and salaries were $46,157 per job while private sector wages and salaries were $50,123 per job. As a result, public sector wages and salaries were -8 percent lower than private sector wages and salaries.


Chart 3 shows that Rhode Island has the highest state and local government wages and salaries ratio at 15 percent--followed by Nevada (12 percent), Hawaii (9 percent), Oregon (4 percent), and Alaska (3 percent). On the flip side, North Dakota has the lowest state and local government wages and salaries ratio at -24 percent--followed by Georgia (-20 percent), Kansas (-20 percent), Virginia (-18 percent), and Texas (-17 percent).


Chart 3 State and Local Government Wages and Salaries as a Percent of the Private Sector Rank 2013.jpg


State and Local Government Benefits Ratio


The state and local benefits ratio is derived by dividing state and local government benefits per job by private sector benefits per job. In 2013, state and local government benefits were $21,508 per job while private sector benefits were $9,920 per job. As a result, public sector benefits were 117 percent higher than private sector benefits.


Chart 4 shows that Nevada has the highest state and local government benefit ratio at a whopping 273 percent--followed by New York (236 percent), California (192 percent), Delaware (149 percent), and Alaska (147 percent). On the flip side, Colorado has the lowest state and local government benefit ratio at 29 percent--followed by West Virginia (34 percent), Kansas (43 percent), Arkansas (43 percent), and Oklahoma (45 percent).


Chart 4 State and Local Government Benefits as a Percent of the Private Sector Rank 2013.jpg


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State Government Ratios


In 2013, the average state government employment ratio was 4.5 state government workers for 100 private sector workers. Hawaii had the highest state government employment ratio at 14.3--followed by Alaska (10), New Mexico (9.2), Delaware (9.1), and West Virginia (8.9). On the other hand, Illinois had the lowest state government employment ratio at 3--followed by Florida (3), New York (3.2), Nevada (3.4), and California (3.7).


In 2013, the average state government compensation ratio was 16 percent higher than the private sector. Alaska had the highest state government compensation ratio at 43 percent--followed by Nevada (42 percent), California (40 percent), Iowa (38 percent), and Vermont (37 percent). On the other hand, North Dakota had the lowest state government compensation ratio at -7 percent--followed by Colorado (-2 percent), Georgia (-2 percent), Virginia (-1 percent), and Indiana (1 percent).


In 2013, the average state government wages and salaries ratio was -5 percent lower than the private sector. Iowa had the highest state government wages and salaries ratio at 20 percent--followed by Vermont (17 percent), Nebraska (14 percent), Alaska (12 percent), and California (9 percent). On the other hand, North Dakota had the lowest state government wages and salaries ratio at -20 percent--followed by Georgia (-19 percent), Virginia (-17 percent), Missouri (-17 percent), and New Hampshire (-16 percent).


In 2013, the average state government benefits ratio was 120 percent higher than the private sector. Nevada had the highest state government benefits ratio at 259 percent--followed by New York (253 percent), California (207 percent), Alaska (173 percent), and New Mexico (156 percent). On the other hand, Colorado had the lowest state government benefits ratio at 36 percent--followed by West Virginia (39 percent), Arkansas (51 percent), Oklahoma (56 percent), and Minnesota (64 percent).


Local Government Ratios


In 2013, the average local government employment ratio was 11.9 local government workers for 100 private sector workers. Wyoming had the highest local government employment ratio at 20.9--followed by Mississippi (17.4), New Mexico (16.6), Kansas (15.9), and Oklahoma (15.6). On the other hand, Hawaii had the lowest local government employment ratio at 3.8--followed by Delaware (7.1), Rhode Island (7.9), Massachusetts (8.7), and Pennsylvania (9).


In 2013, the average local government compensation ratio was 11 percent higher than the private sector. Nevada had the highest local government compensation ratio at 55 percent--followed by Hawaii (46 percent), Rhode Island (42 percent), California (29 percent), and Florida (25 percent). On the other hand, North Dakota had the lowest local government compensation ratio at -15 percent--followed by Kansas (-13 percent), Colorado (-8 percent), Texas (-8 percent), and Oklahoma (-6 percent).


In 2013, the average local government wages and salaries ratio was -9 percent lower than the private sector. Hawaii the highest local government wages and salaries ratio at 30 percent--followed by Rhode Island (20 percent), Nevada (15 percent), Florida (5 percent), and Oregon (3 percent). On the other hand, North Dakota had the lowest local government wages and salaries ratio at -26 percent--followed by Kansas (-23 percent), Utah (-22 percent), Texas (-20 percent), and Georgia (-20 percent).


In 2013, the average local government benefits ratio was 116 percent higher than the private sector. Nevada had the highest local government benefits ratio at 278 percent--followed by New York (232 percent), California (188 percent), Delaware (150 percent), and Pennsylvania (147 percent). On the other hand, Colorado had the lowest local government benefits ratio at 26 percent--followed by West Virginia (31 percent), Kansas (36 percent), Arkansas(36 percent), and Oklahoma (40 percent).


Additionally, within states these metrics can vary widely by county.


In 2013, the counties with the highest local government employment ratios included: Sioux, North Dakota at 681.3, Issaquena, Mississippi at 402.6, Buffalo, South Dakota at 312.1, Todd, South Dakota at 281.6, and Loup, Nebraska at 261.2.


In 2013, the counties with the lowest government employment ratios included: Butte, Idaho at 2, Queens, New York at 2.9, Richmond, New York at 3.1, Honolulu, Hawaii at 3.4, and Kings, New York at 3.4.


In 2011 the counties with the highest local government compensation ratios included: Borden, Texas at 139.9 percent, Mono, California at 107.2 percent, Luce, Michigan at 83.5 percent, Stone, Arkansas at 79.6 percent, and Starr, Texas at 78.7 percent.


In 2011 the counties with the lowest local government compensation ratios included: Slope, North Dakota at -88.7 percent, King, Texas at -72.9 percent, Clark, Idaho at -68.6 percent, Butte, Idaho at -65.6 percent, and Los Alamos, New Mexico at -65.6 percent.

 


 

Notes

 

This data must be used with caution when trying to estimate budget savings from effort to right-size a state's government workforce. For comparability purposes, this data includes all government workers regardless of funding source--whether it is from the General Fund, Dedicated Funds (such as the gas tax), or Federal Funds (such as unemployment insurance).


Tribal governments are classified as local governments. As a result, counties with significant tribal employment, such as casinos, will have very large local government to private sector ratios. This result is compounded in low population counties.


Methodology


The employment and compensation data used in this study are from the Bureau of Economic Analysis’ Regional Economic Accounts. All calculations were performed by the authors. The data exclude farm and proprietorship income as well as dividends, interest, and rents, and personal current transfer receipts. The data were adjusted for inflation using the GDP deflator.


Calculating State and Local Government Compensation Ratios


All data are from the Bureau of Economic Analysis, Regional Economic Accounts, “State Annual Personal Income” interactive database, which is available at http://www.bea.gov/regional/spi/


1. To derive total supplemental benefits for any industry, find the industry line in Table SA05N (Personal Income by Major Source and Earnings by NAICS Industry) and subtract the same industry line from Table SA07N (“Wage and Salary Disbursements by NAICS Industry”).


2. Average private sector compensation is derived by adding “private wage and salary disbursements” (see table SA07N) and “supplements to wages and salaries” (see table SA05N), then dividing by private sector employment. Total supplemental income for private sector employees can also be derived by taking “private earnings” (see table SA05N) and subtracting “private wage and salary disbursements” (see table SA07N) and “nonfarm proprietors income” (see table SA05N).


3. Private sector employment comes from Table SA25N (“total full-time and part-time employment by NAICS industry”), and equals “private employment” minus “nonfarm proprietors employment”. 


4. Total state and local government employee compensation is “wage and salary disbursements” (see table SA07) plus “supplemental income," which is equal to “personal income” (see table SA05N) minus “wage and salary disbursements”.


5. State and local government employment is from Table SA25.


6. Number of state and local government jobs per 100 was calculated by dividing total state and local government employment by total private employment.


7. Compensation ratios are created by dividing the average state and local government compensation by job by the average private sector compensation per job.


8. Wage and salary ratios are created by first dividing wage and salary disbursements for state and local government workers (see table SA07N) by state and local government employment to derive an average state and local government wage and salary per job. Next, the same is done with private sector jobs (see table SA07N) to obtain an average private sector salary. Finally, the average state and local government salary per job was divided by the average private sector salary.


9. Benefit ratios for state and local government employees are created by first subtracting state and local “wage and salary disbursements by NAICS industry” (see table SA07N) from “personal income by major source and earnings by NAICS industry” (see table SA05N) to derive total supplemental benefits for state and local personnel. Next, this remainder is divided by total state and local government employment to obtain average public sector benefits. The same is done with private sector employees (see table SA05N), to obtain average private sector benefits. Finally, public sector benefits are divided by private sector benefits to obtain a public sector employee benefit ratio.


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