The growth of the public sector vs. the private sector in the last 10+ years

The Labor Department official jobs report issued today, showing that 287,000 jobs were created in June (http://www.bls.gov/news.release/empsit.nr0.htm).  Fortunately, this report shows that the size of government did not increase in June.  This blog covers government jobs in addition to the private sector.  For the Labor Department to mention both sectors at the same time, while this has been done for a long time, has always been somewhat surprising giving that governments should exist mainly to support economies, rather than be considered as profit centers.  In fact, in 1900, Federal government expenditures have increased from 3% of the economy to a whooping 24% of the economy in 2012, and it is likely even larger than that today.  Why, in less than 4 generations, have we allowed government to become so big?  Or rather, why have we allowed governments to grow themselves to the humongous size that they currently are?

In a more perfect world, governments should still exist, but in the US they clearly should be much smaller than they have become.  Governments exist mainly to serve the governed people and to serve as facilitators, not to be a large if not the largest segment of any economy.  This is where the Federal and many State and Local governments are today.  Having said that, it is still true that Governments not only need to exist, but in fact there are times that Government not only needs to spend, but to spend heavily.  A prime example is when the economy is weak or in a recession, where growth needs to be manufactured, and it is most conveniently and easily done by increasing expenditures such as infrastructure spending.  However, it now seems that governing bodies of all sorts have become so addicted to these types of measures that they just don’t stop spending, and therefore continue to grow in relation to the private sector.

But there are other, perhaps even more major concerns than Governments that become too large.  This blog space is too small for a full, in-depth analysis of these other concerns, such as the exponential rise in both public and private sector debt since 2000.  The attention of this blog space is to focus on what has happened in State and Local Government wages and benefits in the last 10+ years.

Let’s look first at State and Local Government wages compared to a variety of private sector wages:

In this chart is shown that that State and Local wage growth is trending similarly to a cross-section of private industry sectors, according to data obtained from: Employment Cost Index Historical Listing – Volume III   April, 2016 Bureau of Labor Statistics, see www.bls.com.  OK so far, so good (although this data makes no mention of how many more government employees exist today compared to yr2005).

 

However, when we look at benefits, an entirely different picture emerges:

In this chart we see something much different.  In this case, we see two sectors rising to the top of the chart.  Here we see the BENEFITS of state and local government workers (countrywide) taking off compared to the private sector, and even more than for Union workers.

It is important to note that we need to also combine both wages and benefits to get the complete picture:

Unfortunately, what we still find is that even by adding the more equivalent wage picture to benefits, the overall compensation picture PER EMPLOYEE, at least for State and Local governments, has grown significantly more in the last 10+ years than for the private sector.

What this tells us is that not only have government expenditures grown from 3% to 24% of the economy in less than 4 generations (ie massive growth of the public sector), but that in the last 10+ years, we have allowed our State an Local officials to pay themselves better than we get paid ourselves (ie, those in the private sector), especially when it comes to benefits.

So much attention is always focused on reigning in spending by corporations large and small when times get tough. Shouldn’t we also focus on the public sector as well?  A recent article in the local paper provided some very revealing insights concerning the typical thought process of elected leaders.  It happens to be quoted on by a local county government official in Illinois, a state where there are an incredible number of elected and especially appointed officials (this reality along with the related pension fiasco go hand-in-hand with the fact that Illinois has had so many budget problems for so many years and is now considered by many to be the most poorly governed state in the US).  In this county in Illinois, the board chairmen noted that the only way they could balance the county budget for fiscal 2017 was for department heads and elected officials to 1) cut staff, 2) increase revenues,  3) cut services, and/or 4) raise property taxes.  Clearly this contagion runs not only through the Illinois state capitol, but in counties as well.

How about this one:  5) eliminate the redundant/unnecessary elected and appointed government positions, and the massive pensions that go along with them.  It will be painful, but at some point it will be necessary to clean house throughout the state of Illinois.  And to some extent, as the charts and information above show, likely every state (as well as the Federal Government) need to clean house as well.