The change in earnings for private and public workers from 2005-2014

Abstract: A review of empirical data reveals that the median earnings for full-time, year-round public employees rose at a significantly higher rate than private earnings over the past 10 years. The data suggests economic recessions may produce a “ratchet effect” whereby the level of government pay and employment in relation to the private sector rises faster than intended or is desirable.

This paper examines the rate of change in median earnings and total employment levels for full-time, year-round government and private sector workers over a ten year period that includes a significant recession. Theory would suggest that, on average, private job creation and wage growth would suffer more from economic downturns than government employment and wage levels, particularly in localities with strong public unions and collective bargaining laws.

On December 3, 2015, the U.S. Census Bureau released their 2010-2014 American Community Survey (ACS) data, making non-overlapping ACS 5-year estimates available for the first time. The 5-year datasets are a time period estimate, reflecting data collected over the entire 5-year period, as opposed to a point in time estimate.

This analysis will compare changes between the 2005-2009 and 2010-2014 ACS datasets as it pertains to the median earnings for full-time, year-round workers of the following three classes, as defined by the Census Bureau:

  1. Private, for-profit wage and salary workers
  2. Local government workers
  3. State government workers

The five year time-period estimates were chosen because they have the lowest margin of error of any dataset provided by the Census Bureau. Additionally, there is a natural lag between wage trends of private and government employees, which is especially pronounced in periods of sudden and significant recessions.

Consequently, selecting a single year estimate runs the risk of being misleading in one direction or the other, while smoothing out the data over a five year period avoids this issue and more accurately reflects a genuine trend.

State and local government workers are reported separately for earnings data as they typically have separate unions and collective bargaining laws.

Change in earnings for private and government workers

Nationally, median earnings for private, for-profit wage and salary workers fell 3.32% in inflation-adjusted dollars from the 2005-2009 period to the 2010-2014 period. Local government workers saw their earnings increase by 0.87% with state government workers’ earnings decreasing by 0.31%.

Table 1 reports these values on a state-level.

Table 1: Growth in earnings from 2005-2009 to 2010-2014 by class of worker in 2014 inflation-adjusted dollars

State Private Public, local Public, state
Rhode Island -4% 10% 1%
Nevada -8% 0% -5%
New York -2% 4% 4%
Indiana -4% 1% 3%
New Jersey -3% 3% 1%
Pennsylvania -2% 3% 3%
Michigan -7% -3% -1%
Illinois -3% 2% 1%
New Hampshire 1% 4% 6%
Iowa 0% 5% 4%
Connecticut -3% 2% 0%
Vermont -1% 5% 1%
California -4% 2% -1%
Massachusetts -2% 4% 1%
Ohio -3% 1% 0%
Tennessee -2% -1% 2%
Louisiana 0% 3% 4%
Wisconsin -4% 2% -3%
Alabama -2% 0% 1%
Utah -1% -1% 5%
Wyoming 5% 10% 6%
Hawaii -4% -1% -1%
Oregon -2% -1% 2%
Georgia -5% -4% -1%
Arkansas -1% 0% 4%
Florida -6% -4% -3%
Alaska 3% 5% 4%
Washington -1% 3% -1%
Kansas -2% -1% 0%
Maryland -2% 2% -3%
Kentucky -3% 0% -2%
Texas 1% 1% 3%
South Dakota 1% 2% 3%
North Dakota 9% 8% 11%
Minnesota -2% 0% -3%
Nebraska 1% 4% 0%
New Mexico 1% 3% -1%
Missouri -2% -2% -1%
Mississippi 0% -1% 1%
Arizona -3% -3% -3%
Virginia -1% -1% -2%
Idaho -3% -2% -5%
South Carolina -1% -3% 0%
Colorado -1% 1% -4%
Delaware -2% 0% -5%
Maine -1% 0% -4%
North Carolina -2% -3% -3%
West Virginia 3% 1% 3%
Montana 4% 1% 4%
Oklahoma 0% -2% -2%

Tables 2 and 3 compare the median earnings between private and government workers for each state.

Table 2: Median earnings for private and local government workers for the 2010-2014 time period

State Private Public, local Public as % of Private
Nevada $37,875 $56,915 150%
Rhode Island $44,646 $65,506 147%
California $45,028 $62,286 138%
Oregon $41,480 $53,288 128%
New York $46,335 $59,200 128%
Hawaii $40,204 $51,336 128%
Washington $48,679 $60,222 124%
Illinois $45,697 $56,064 123%
Alaska $49,309 $60,121 122%
Wisconsin $42,051 $51,116 122%
Michigan $43,014 $52,065 121%
Florida $37,103 $43,877 118%
Ohio $41,608 $49,137 118%
Iowa $40,464 $47,074 116%
Connecticut $54,680 $63,474 116%
Pennsylvania $43,781 $50,715 116%
Vermont $41,622 $47,924 115%
Maryland $50,259 $57,186 114%
New Jersey $53,971 $61,372 114%
Massachusetts $54,532 $61,903 114%
Nebraska $39,197 $44,080 112%
Wyoming $45,051 $50,071 111%
Alabama $37,399 $41,541 111%
Minnesota $46,821 $51,967 111%
Idaho $36,669 $40,536 111%
Maine $40,331 $44,531 110%
Texas $40,814 $45,063 110%
Tennessee $37,296 $41,170 110%
Arizona $40,733 $44,867 110%
Delaware $46,345 $50,887 110%
Utah $41,534 $45,423 109%
Colorado $46,419 $50,317 108%
New Mexico $36,731 $39,789 108%
Montana $37,130 $39,540 106%
Kentucky $38,490 $40,965 106%
Indiana $40,878 $43,404 106%
Arkansas $34,992 $36,891 105%
New Hampshire $49,808 $51,901 104%
Georgia $40,519 $42,206 104%
Missouri $40,258 $41,822 104%
South Dakota $36,189 $37,462 104%
Virginia $45,902 $46,796 102%
North Carolina $39,005 $39,642 102%
South Carolina $37,790 $38,403 102%
Kansas $41,147 $41,536 101%
North Dakota $41,154 $41,421 101%
Louisiana $40,011 $40,130 100%
Mississippi $35,050 $34,879 100%
West Virginia $38,012 $37,646 99%
Oklahoma $37,319 $36,774 99%

Table 3: Median earnings for private and state government workers for the 2010-2014 time period

State Private Public,  state State as % of Private
Nevada $37,875 $53,248 141%
California $45,028 $61,321 136%
New York $46,335 $60,843 131%
Rhode Island $44,646 $58,125 130%
Michigan $43,014 $55,743 130%
Iowa $40,464 $51,471 127%
Connecticut $54,680 $67,465 123%
Hawaii $40,204 $49,376 123%
Ohio $41,608 $50,547 121%
Wisconsin $42,051 $50,601 120%
Alabama $37,399 $44,966 120%
Vermont $41,622 $50,022 120%
Oregon $41,480 $49,526 119%
Illinois $45,697 $54,474 119%
Alaska $49,309 $58,634 119%
Montana $37,130 $43,890 118%
New Mexico $36,731 $43,006 117%
New Jersey $53,971 $63,130 117%
Pennsylvania $43,781 $50,847 116%
Utah $41,534 $47,455 114%
Arkansas $34,992 $39,911 114%
Idaho $36,669 $41,716 114%
Florida $37,103 $41,583 112%
North Dakota $41,154 $46,019 112%
Massachusetts $54,532 $60,851 112%
Minnesota $46,821 $51,986 111%
Louisiana $40,011 $43,901 110%
Wyoming $45,051 $49,289 109%
South Dakota $36,189 $39,356 109%
Tennessee $37,296 $40,470 109%
Washington $48,679 $52,769 108%
Maine $40,331 $43,709 108%
Texas $40,814 $44,190 108%
Nebraska $39,197 $42,386 108%
Kentucky $38,490 $41,617 108%
Colorado $46,419 $50,153 108%
South Carolina $37,790 $40,796 108%
Mississippi $35,050 $37,456 107%
North Carolina $39,005 $41,610 107%
Arizona $40,733 $43,210 106%
Indiana $40,878 $42,925 105%
Oklahoma $37,319 $39,015 105%
Maryland $50,259 $52,085 104%
Georgia $40,519 $41,450 102%
Kansas $41,147 $42,092 102%
Delaware $46,345 $47,184 102%
West Virginia $38,012 $37,900 100%
New Hampshire $49,808 $49,506 99%
Virginia $45,902 $45,270 99%
Missouri $40,258 $37,864 94%

Table 4 shows the growth in the pay gap between government and private workers from the 2005-2009 time period against the 2010-2014 values reported above in Tables 2 and 3. This is essentially a consolidated look at the values reported in Table 1.

For example, Rhode Island local government workers earnings were 129% of private earnings during the 2005-2009 period, which increased 18% to the 147% gap found during the 2010-2014 period, as reported in Table 2 above.

Table 4: Growth in pay gap between public and private workers over the 2005-2009 and 2010-2014 time periods

State Growth in local government pay gap Growth in state government pay gap
Rhode Island 18% 6%
Nevada 12% 5%
New York 7% 8%
Michigan 5% 8%
Indiana 5% 7%
Pennsylvania 6% 5%
Illinois 6% 5%
New Jersey 6% 5%
Iowa 6% 5%
California 7% 4%
Connecticut 6% 4%
Vermont 7% 3%
Ohio 5% 4%
Massachusetts 6% 3%
New Hampshire 3% 5%
Alabama 3% 4%
Hawaii 3% 4%
Oregon 2% 4%
Tennessee 2% 4%
Wisconsin 6% 0%
Utah 0% 6%
Louisiana 2% 4%
Wyoming 5% 0%
Alaska 3% 2%
Florida 2% 3%
Georgia 1% 4%
Arkansas 0% 5%
Washington 4% 0%
Kansas 1% 3%
Maryland 4% 0%
Kentucky 2% 1%
South Dakota 1% 2%
Texas 0% 3%
North Dakota 0% 3%
Minnesota 3% -1%
Nebraska 3% -1%
Missouri 0% 1%
New Mexico 3% -2%
Mississippi -1% 2%
Arizona 0% 1%
Idaho 2% -2%
Virginia 0% 0%
South Carolina -2% 1%
Delaware 2% -3%
Colorado 2% -3%
Maine 1% -2%
North Carolina -1% -1%
West Virginia -2% 0%
Montana -3% 1%
Oklahoma -2% -2%

Nationally, median earnings for full-time, year-round local government workers as a percentage of private earnings increased from 112% to 117% over the 2005-2009 and 2010-2014 time periods, with state government earnings increasing from 110% to 114% of private earnings.

Remarkably, three of the states with the largest pay gap for state government workers — Nevada, New York and Rhode Island — were already paying wages that were some of the richest in the nation.

In Andrew Biggs and Jason Richwine’s A State-by-State Ranking of Public Employee Compensation the authors compared compensation for similarly-skilled and educated employees of the private workforce and the state government.

In the vast majority of cases, state government employees earned less in wages than their private sector counterparts, but more in total compensation when benefits were accounted for.

However, the states of Nevada, New York and Rhode Island were considerable outliers, with state government workers earning wages of -1%, -3% and equal to their private sector counterparts, respectively.

By contrast, most state government workers earned 10-20% less than their similarly-skilled private counterparts in wages, a difference that was almost always offset by vastly richer benefit packages.

For example, when factoring in benefits and job security, state employees of Nevada, New York and Rhode Island received total compensation packages worth 29, 32 and 47 percent more than their similarly-skilled private sector counterparts, according to Biggs and Richwine’s analysis of data from 2009-2012.

These findings, and a review of yearly data from 2012-2014, suggest this gap has widened significantly in recent years.

Effect of collective bargaining laws on pay gap between private and government workers’ earnings.

For the 28 states where local government workers had mandated collective bargaining laws, the average pay gap between private workers was 118.6 percent, more than triple the 105.5 percent pay gap found in the 20 states without mandatory collective bargaining.

The states of Kentucky and Idaho were excluded as certain groups of local government workers had mandated collective bargaining while others did not.

The average state’s pay premium for median local government earnings as compared to private workers, by strength of public collective bargaining lawspaypremium

The average pay premium in the 28 states with mandatory collective bargaining for state government workers was 16.8 percent, nearly double the 8.8 percent found in the remaining 22 states.

Unsurprisingly, strong public sector collective bargaining laws are effective at driving up public pay and, consequently, the pay gap between private and government workers.

Change in full-time employment for private and government workers

Nationally, the total number of state and local government full-time, year-round workers increased 9.9% from the 2005-2009 time period to the 2010-2014 time period, nearly triple the 3.4% gain in the private sector.

Table 5 reports these values on a state-level.

Table 5: Percent change in full-time employment from the 2005-2009 to the 2010-2014 time period, by class of worker

State Private Employment State + Local Public Employment
New Mexico 2% 19%
Arkansas 4% 20%
Wyoming 12% 28%
Oregon -1% 13%
Connecticut 1% 14%
South Carolina 3% 15%
Tennessee 2% 14%
West Virginia 2% 14%
Mississippi 3% 14%
Wisconsin 1% 12%
New Hampshire 1% 11%
Delaware 3% 13%
Idaho 5% 15%
Nevada -4% 6%
Colorado 7% 16%
Minnesota 4% 14%
Alabama 1% 10%
Maine 0% 9%
Vermont -1% 8%
North Carolina 4% 12%
Massachusetts 2% 10%
Illinois 1% 9%
Virginia 5% 13%
Kansas 3% 11%
Missouri 1% 9%
Arizona -3% 5%
Nebraska 7% 15%
Texas 12% 20%
Georgia 0% 7%
Kentucky 3% 10%
Montana 8% 15%
Florida 1% 8%
Maryland 4% 10%
Indiana 1% 8%
Iowa 6% 12%
Rhode Island -1% 5%
Ohio 0% 6%
Utah 9% 14%
Washington 7% 13%
Hawaii 8% 12%
Alaska 21% 25%
New Jersey 3% 7%
California 3% 7%
South Dakota 8% 12%
Oklahoma 10% 13%
Michigan -2% 1%
Pennsylvania 3% 5%
North Dakota 22% 24%
Louisiana 12% 11%
New York 3% 2%

Michigan and New York experienced the lowest increases in government employment, at 1 and 2 percent, respectively. The remaining 48 states saw full-time, year-round government employment increase by at least 5%.

By contrast, there were 21 states where private employment did not rise by more than 2%, with 6 states experiencing net job losses.

The employment numbers from the ACS dataset should be treated with caution, however, as the Census Bureau introduced an improved sequence of labor force questions in the 2008 survey.

Additionally, while the smoothed nature of the 5-year dataset is more useful for assessing broad trends in earnings growth, the dramatic, immediate harm caused by involuntary job separation warrants a closer look at employment trends.

The Bureau of Labor and Statistics’ Current Employment Statistics is widely considered the gold standard for employment data. The data does not break down government and private employment by part and full-time, so the chart below reflects the total employment levels of each group.

fredgraph

As can be seen above, government employment remains roughly flat during the 2008 recession, compared to a dramatic decline in private employment. In other words, government workers are effectively immune from the worst effects of a recession: widespread job loss.

Interestingly, in the preceding two recessions (marked by gray columns in the chart) government employment actually increased significantly, compared to significant net declines in private employment.

Summary

The table below ranks each state according to the pay gap between private and government workers, as well as the disparity between the rate of growth in government pay relative to the private sector.

For example, Rhode Island state government workers saw their earnings increase by 4% as compared to the 1% decline of private workers. The differential of 5 percentage points was the sixth highest of any state, which is where the “6” value in the 4th column of the row labeled,”Rhode Island” is derived from.

Summary Table: Nationwide Ranking of States with Largest Pay Gap Between Private and Government Workers and Growth Rate of Government Earnings as % of Private

State Pay disparity Growth rate relative to private sector
Local State Local State
Nevada 1 1 2 14
California 3 2 9 22
Rhode Island 2 4 1 6
New York 5 3 4 3
Hawaii 6 8 26 20
Michigan 11 5 15 2
Oregon 4 13 33 13
Iowa 14 6 12 12
Wisconsin 10 10 7 36
Connecticut 15 7 6 18
Ohio 13 9 17 17
Illinois 8 14 13 8
Alaska 9 15 22 30
Vermont 17 12 3 24
Alabama 23 11 24 19
Pennsylvania 16 19 8 7
Florida 12 23 29 27
New Jersey 19 18 5 9
Washington 7 31 18 39
Massachusetts 20 25 10 26
Idaho 25 22 32 46
Montana 34 16 50 34
New Mexico 33 17 21 45
Minnesota 24 26 23 42
Wyoming 22 28 14 37
Utah 31 20 43 5
Nebraska 21 34 20 44
Arkansas 37 21 38 11
Tennessee 28 30 31 10
Maine 26 32 34 47
Texas 27 33 39 25
Maryland 18 43 16 40
Colorado 32 36 28 50
Arizona 29 40 41 35
North Dakota 46 24 44 23
South Dakota 41 29 37 29
Kentucky 35 35 25 33
Louisiana 47 27 27 15
Delaware 30 46 30 49
Indiana 36 41 11 1
South Carolina 44 37 48 32
North Carolina 43 39 45 43
Georgia 39 44 35 16
Mississippi 48 38 46 28
New Hampshire 38 48 19 4
Kansas 45 45 36 21
Missouri 40 50 42 31
Virginia 42 49 40 41
Oklahoma 50 42 47 48
West Virginia 49 47 49 38

Concluding Thoughts

While the data can vary dramatically by state, the overall findings support the thesis that government employees, both in terms of wages and overall employment, fare much better than those in the private sector during an economic recession.

The largest disparities were typically found in states that already paid above-market levels of compensation and where collective bargaining laws for public unions were quite strong.

In these states, the negative impacts of an economic recession were dramatically limited for government workers. Consequently, in states like Nevada, where median private sector earnings fell 8% in real dollars, the gap between private and public pay can rise significantly even without any overt action designed to raise public pay further.

Unsurprisingly, government’s monopoly status and taxation privileges offer substantial protections from economic downturns as compared to the private sector. The result is a comparative pay raise and increase in the number of government employees when the private sector is least able to afford it.

Policy makers should address this reality and consider means to ensure that government employment and pay do not rise to a level greater than intended or is desirable.

 

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