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Monday, October 28, 2019

Bloated Government: A Tale of Two States

Wyoming is paying its government workers on average 79 percent more than private employees make. This is, plainly, unsustainable.

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There are many ways to measure the size of government. One of the most telling is that which compares government payroll to private-sector payroll. Some publications calculate the number of state and local government employees per capita, with a higher number suggesting government is overstaffed. 

A better measurement is the Government Employment Ratio, which compares state and local government employment directly to private-sector employment. The ratio is simple:

  • Add together the number of state and local government employees;
  • Divide that sum by the total number of private-sector employees; 
  • Multiply the ratio by 1,000.

We now have the GER. As it happens, Wyoming has the highest GER of all states, followed by New Mexico and Alaska (sometimes in the reversed order). 

Another important measurement of the size of government is the compensation gap between government and the private sector. Here, again, Wyoming stands out; to show just by how much, we will compare the Cowboy State to one of its neighbors, South Dakota. 

However, before we get there, let us make a general comparison of earnings by industry in Wyoming and South Dakota. The point will be apparent in a moment. The following numbers are from the Occupational Employment database over at the Bureau of Labor Statistics, where the latest entries are from the May 2018 survey reporting numbers for 2017. Table 1 reports the average wage by industry:

Table 1
SourceBureau of Labor Statistics
WYSD
Management $     99,120  $   107,120
Business, financial $     69,360  $     63,470
Computer, mathematical $     67,380  $     65,680
Architecture, engineering $     80,650  $     68,120
Life, physical, social science $     59,130  $     55,890
Community, social service $     48,830  $     40,430
Legal $     75,490  $     81,210
Education, training, library $     49,400  $     42,270
Arts, entertainment, sports $     42,940  $     38,170
Health care professional $     80,430  $     71,380
Health care support $     32,940  $     29,590
Protective services $     45,520  $     41,820
Food preparation and serving $     24,920  $     23,210
Facilities maintenance $     29,920  $     26,680
Personal care and service $     28,730  $     26,160
Sales $     35,410  $     38,620
Office, admin support $     37,250  $     32,210
Farming, fishing, forestry $     32,620  $     31,360
Construction, extraction $     52,340  $     39,790
Installation, maint., repair $     56,360  $     47,100
Production $     55,340  $     34,850
Transportation $     46,110  $     34,770 

Overall, earnings are fairly similar, with a slight bias in favor of Wyoming. There are two reasons for this bias, one being the relatively well-paying minerals industry; its primary appearance in this data is marked by grey. 

The second reason is the high GER in Wyoming. The BLS data in Table 1 does not distinguish between private and government employees, but the latter tend to show up in the industries marked by yellow. 

Other databases allow us to calculate the compensation ratio. Over at the Bureau of Economic Analysis, we get employment and compensation data that includes both full-time and part-time employees. When both are added we get the full picture of just how much government employees cost us.

Looking at total employee compensation, i.e., wages and salaries with benefits added on top, we get the following picture; the disparity number is the dollars earned by an average state-local government employee per $1.00 earned by a private-sector employee:

Table 2
Source: Bureau of Economic Analysis

Wyoming CoE Emp
Private  12,099,247,000       310,021         39,027
State-local    4,279,589,000         61,386         69,716
Disparity:  $         1.79
S.D. CoE Emp
Private  18,630,130,000       485,568         38,368
State-local    3,372,812,000         66,655         50,601
Disparity  $         1.32

The Wyoming government sector pays its employees 79 percent more per employee, than people earn in the private sector. 

The disparity is not as high if we isolate wages: $1.47 in Wyoming and $1.16 in South Dakota. In other words, benefits are a larger part of the compensation of employees in Wyoming, accounting for 32.6 percent of total employee compensation. The same number in South Dakota is 27.6 percent.

For reference, in both states benefits account for 18 percent of total CoE in the private sector.

This comparison shows how eminently important it is to reduce the size of government, and to do it permanently. It is entirely unsustainable that government employees earn 79 percent more than those who pay their wages, salaries and benefits. In order to get this done, reforms that reduce red tape or increase efficiency in government are entirely insufficient. It is always good to reduce the regulatory burden of government and make its operations a bit slimmer, but this will not reduce the cost of government over time. 

The former has no effect on government spending and the latter will, at best, give other reform efforts some legislative gestation time.

Unless red-tape reforms are tied directly to a zero-based budgeting reform of government, cuts in regulations will do nothing to reduce the actual operating cost of government. Furthermore, while onerous, regulations are much less burdensome than taxes. Credible research on the cost of regulations suggest that, nationally, the private sector loses about $.50 for every dollar it pays in taxes. 

In other words, focusing reform efforts on regulations alone is an inefficient way to stimulate growth in the private sector. And, again, in isolation it does nothing to help rein in government spending. This is a particularly acute problem in Wyoming, where the combined deficit in state and local government finances amounts to almost $1 billion.

The only way to close the budget gap and permanently remove the threat of higher taxes is by structural reforms to spending programs: school choice, a voucher and charity reform to Medicaid, interstate tolling and hard, actually-working TABOR reforms to rein in remaining spending and keep taxes down. A path to such reforms begins with an absolute no to higher taxes. 

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