Rising Compensation For Public Servants Relies on a Growing Private Sector

Many proponents of small government may find it hard to believe that the total compensation of America’s private-sector employees grew more rapidly over the past decade than did the total compensation of state and local government employees.

That is indeed what the data show — and the margin is not insignificant.  However, the meaning of the data is subject to interpretation, and the standard interpretation offered by Big Labor and other fans of Big Government, i.e., that a political “conspiracy” against government spending is enjoying immense success,  is not remotely plausible.

According to U.S. Commerce Department data, adjusted for inflation using the U.S. Labor Department’s consumer price index, from 2003 to 2013 the total compensation of America’s private-sector nonfarm employees (including wages, salaries, benefits and bonuses) increased by 10.3%, compared to a 6.8% nationwide increase in state-and-local government employee compensation.

(Since the statistics cited here measure aggregate compensation, they reflect the relative growth rates in total private and state and local government employment as well as the relative growth rates in compensation per employee.)

Demographics alone, rather than any so-called “conspiracy” against the government sector, offer a sufficient explanation for why state and local government compensation growth is no longer outpacing private-sector compensation growth, as it did over most of the past half a century.

From 2002 to 2012 (the latter being the most recent year for which age-adjusted population data are available, the U.S. population aged five to 17 (that is, the K-12 school-aged population) grew by less than 1%, even as the U.S. population as a whole grew by 9%. Since the population served by K-12 schools, by far the largest source of jobs for state and local public employees, has grown only about a tenth as fast as the total U.S. population over the last decade, it really shouldn’t come as any surprise that state and local public employee compensation has grown more slowly than employee compensation in the private-sector.

And it should be noted that the slowdown in government payroll growth is not affecting all states equally.  In the 22 states that had Right to Work laws on the books throughout the last decade, state and local government compensation grew by 10.4% in real terms over the past decade, compared to growth of just 6.1% in states that lacked Right to Work laws for the entire period.  (Indiana and Michigan, whose Right to Work laws took effect in 2012 and 2013, respectively are not included in either group of states.)

Demographic data also show why it is totally unsurprising and appropriate that Right to Work states would increase spending on public employee compensation far more rapidly than forced-unionism states.  From 2002 to 2012, the number of residents aged five-to-17 in Right to Work states grew by 8.3%, even as the population in the same age bracket fell by 4.0% in forced-unionism states.  (Since Michigan’s Right to Work law didn’t take effect until 2013, it is counted as a forced-unionism state here.  Indiana is again excluded from both groups.)

Fortunately for taxpayers in Right to Work states, private-sector compensation growth in such states is outpacing public-sector compensation growth by a wider margin than the national average.  From 2003 to 2013, Right to Work private-sector compensation growth was greater by 5.6 percentage points than Right to Work state and local government compensation growth, compared to the national average of 4.3 percentage points.

It is true that, in Right to Work states, Big Labor bosses lacking forced-dues privileges have a harder time electing state and local politicians who are ideologically supportive of greater government spending, regardless of need.  But government union bosses who fight to block Right to Work legislation for that reason win a pyrrhic victory when they succeed.  Over time, only healthily growing private-sector payrolls can make public-sector payroll growth sustainable.

From 2002 to 2012, the K-12 school-aged population of Right to Work states rose by 8.3%, even as the K-12 contingent shrank by 4.0% in forced-unionism states. But due to the healthy growth of private payrolls in Right to Work states, they have actually been better able to afford the rising cost of public education. Image: MassAppealNews.com

Compensation of employees by industry (SA06, SA06N)