Americans often wonder where all our tax money goes.
Well, a good chunk finances a steadily-growing government workforce. State and local governments spent $1.1 trillion on employee wages and benefits in 2008. That’s half of what those governments spent overall.
And while the private sector job market remains bleak, there are more civil service jobs than ever. The federal Labor Department projects wage and salary employment in state and local government will increase 8 percent by 2018. That’s a comforting thought for anyone who has to spend time in line at the DMV. Wish we could be as confident about the prospects for creating new corporate and manufacturing jobs to help pay for these new hires.
It’s not simply the number of new jobs that costs taxpayers. It’s that these government jobs pay more than ever. The U.S. Bureau of Labor Statistics reports that state and local government workers earn almost $40 per hour in wages, salaries and benefits. That’s more than 25 percent higher than the combined compensation of the average private sector job ($27 per hour).
Public-sector employees have more paid leave and receive more than twice the health insurance benefits of private-sector employees. And government employees are famously more secure.
While the overall job market has been churning in recent years, destroying more jobs than it created, public-sector workers seldom are cut for any reason. Meanwhile, the number of government employees who voluntarily resign is one-third the rate of the private sector. “That suggests that state and local pay is higher than needed to attract qualified workers,” notes Chris Edwards of the Cato Institute.
None of this seemed like much of a concern during good economic times. The growing economy of the mid-2000s generally brought higher tax revenues, providing more money for states and localities.
The recession ended that. Most states have seen tax revenues decline. Since states are required to maintain balanced budgets (a discipline the federal government routinely ignores), they’ve been struggling to make ends meet. A good chunk of last year’s federal stimulus spending went to states to keep civil servants on the payroll.
But as Indiana Gov. Mitch Daniels warned in The Wall Street Journal last September, “state governments will soon have to choose between a major downsizing or consigning themselves to permanent decline.”
There’s a bigger problem. Lord Keynes famously said that, “In the long run, we’re all dead.” But before they die, millions of retired state and local bureaucrats will drain trillions of dollars from taxpayers.
A report by Robert Novy-Marx and Joshua Rauh found that government pension funds are unfunded by some $3.2 trillion. That’s an extra $27,000 that each American household will need to pony up in the decades ahead.
The price tag is so large because more than 80 percent of government workers are still eligible for old fashioned defined-benefit retirement programs. State and local governments are making massive spending promises, and taxpayers will have to pick up the tab. By contrast, such pension funds are only available to 20 percent of private-sector workers.
Civil service workers are also a throwback because they’re heavily unionized. Last year some 7.9 million public-sector employees were in a union, while only 7.4 million private-sector workers were. More than a third of government workers pay union dues, while just 7 percent of the rest of the workforce is unionized.
Dan Henninger of The Wall Street Journal writes that the unionization of government workers dates to a 1962 executive order issued by President Kennedy. As a cost-saving measure, President Obama could lift that order, since government employees would still enjoy the protection of civil service laws and greater job security than most private-sector workers.
It’s time governments took control of their payrolls . After all, we’ll all be paying for these decisions for decades to come.