Weekly Economic Report: Government Employment and Compensation Ratios

by Wyoming Liberty Group Staff

The Government Employment Ratio (GER) is one of several measurements of the size of government. Likewise, the Government Compensation Ratio (GCR) is a measurement of the cost of government related directly to the performance of the private sector.

Main finding: Wyoming has the largest GER and the second highest GCR of all states. There is also a serious pay disparity – or pay gap – between government and the private sector in our state.

Employee compensation is a major item in a government budget, its size being governed by the size and scope of the programs in the same budget. In other words, measurements of workforce size and cost are good indicators of the size and cost of government as a whole.

The GER and the GCR give different angles to the size and cost of the government workforce. The former is built on employment numbers, the latter on the number of jobs. The difference is deliberate but motivated solely by the availability of raw data. The Bureau of Labor Statistics (BLS) publishes detailed employment numbers but not compensation figures of sufficient sophistication.

By contrast, the Bureau of Economic Analysis (BEA) publishes highly useful compensation data but not employment data of similarly useful quality. Their comparable variable is instead the number of jobs by industry. Therefore, the GER is calculated based on BLS data while the GCR relies on raw data from the BEA.

Government Employment

The GER is the best measurement of the size of the government workforce. Another often used measurement is the number of government employees per 10,000 residents. The problem with this measurement is that it does link the size of government to the ability of the private sector to fund it. A state could have a large government workforce per capita but also have a large private workforce, thus being relatively more able to pay for a large government than other states with a similar government-to-population workforce ratio.

The GER avoids this problem, reporting

To avoid the distortion of temporary swings in the numerator and, especially, the denominator, the GER reported here is modified from previous applications, such that it now reports a 12-month moving average. The ratio reported in Figure 1 is the moving average for the period that starts in July 2018 and ends in 2019. For this period, the GER for Wyoming is 281, meaning that there were, on average, 281 state and local government workers per 1,000 private-sector employees. It has declined in the past two years, being 297 for the corresponding period ending in June 2017:

Figure 1

Source: Bureau of Labor Statistics

Despite the decline in the GER for the past two years, Wyoming still tops the national ranking. The top spot is due first and foremost to a national trend where the private sector is outgrowing government in terms of employment.

As for the decline itself, it is partly to a decline in the government workforce: total state and local government employment stood at 65,000 in June 2013, 63,800 in June 2015, 62,600 in June 2017 and 61,700 in June 2019.

Partly, the decline in the GER is due to a recent rise in private-sector employment During the same period of time employment in the private sector in Wyoming declined from 232,200 in June of 2015 to 221,300 in June of 2017. In June 2019 it stood at 229,600.

These are noteworthy numbers for the Wyoming economy, but not the strongest growth in private-sector employment. Again isolating the June numbers, the year-over-year growth was 1.82 percent, the 15^th best private-sector job growth in the country. Four neighboring states grew faster, with Utah at 3.36 percent, Idaho at 2.97, Colorado at 2.22 and South Dakota at 2.00. Montana was behind Wyoming at 1.27, as was Nebraska (0.36 percent).

Government Compensation

The GCR is measured as a hypothetical tax rate, with the total cost of employee compensation in government as a share of total employee compensation in the private sector. If private-sector employees paid the compensation of government workers straightforwardly out of their own compensation, it would be at the hypothetical tax rate.

As a lead-up to the GCR, Figure 2 reports the pay disparity between, on the one hand, a job in state and local government and on the other hand a private-sector job. The numbers are from 2017, the latest year for which raw data is available:

Figure 2

Source of raw data: Bureau of Economic Analysis

In all the 50 states, a government job pays more, on average, than a private-sector job, with Indiana being home to the smallest pay gap at $1.15. In Nevada it is $2.02, in other words an average non-federal government job pays twice as much as an average private-sector job.

The Wyoming pay gap, or pay disparity, is $1.77, up from $1.44 in 2007 and $1.37 in 1998 (the earliest year with available raw data). Figure 3 reports the annual government-to-private pay gap for our state for 1998-2017 (right axis). It also reports the actual average employee compensation per job in government and the private sector (current prices, left axis):

Figure 3

Source of raw data: Bureau of Economic Analysis

While government employee compensation has risen over time, it has been stagnant in the private sector since 2012. That year it stood at $39,838; in 2017 it was $39,317. Corresponding numbers for the combined sector of the state and local governments are, respectively: $59,151 and $69,793.

While private compensation fell by 0.6 percent, government compensation increased by 18 percent.

Table 1 reports the sum total of employee compensation, for Wyoming, in state and local government and the private sector:

Table 1

Source: Bureau of Economic Analysis

The Government Compensation Ratio, measured as total government compensation divided by total private compensation, was 33.2 percent for Wyoming in 2018. It was the second-highest GCR of all states, marginally behind Alaska:

Table 2

Source of raw data: Bureau of Economic Analysis

Implications of the findings

If the Wyoming GCR had been equal to the 16.8 percent national average, the government workforce would have cost Wyoming taxpayers $2.09 billion less than it actually did in 2018. If this cut were achieved through lower compensation per government job, the average compensation for a state or local government job would fall from $69,793 to $34,408.

If the average state and local government job in Wyoming paid the exact same as the average private-sector job, the GCR for Wyoming would fall from today's 33.2 percent to 19 percent, comparable to California and slightly below West Virginia.

If government employees were still compensated at today's level, the 16.8-percent GCR could be achieved through the elimination of 36,000 government jobs. The 19-percent GCR would require the termination of just below 26,400 jobs in state and local government in Wyoming.