Four Charts on Worrisome Public Sector Employment Trends Since the Great Recession

When assessing the U.S. state and local government (SLG) employment situation post-March 2020, it is important to understand the sector never fully recovered from the devastating effects of the Great Recession.

State governments alone faced “more than $500 billion in cumulative shortfalls from 2009 to 2012” according to analysis by Brookings. An influx of federal aid was critical for insulating the sector from steeper job losses in the few years after the global financial crisis (GFC). However, an early withdrawal of federal aid severely affected the sector, contributing to years of delayed employment recovery.

The lessons from the Great Recession were rectified with the unprecedented amount of aid to state and local governments in 2020-2021. Still, despite the large flow of federal aid to SLGs, public sector jobs have been extremely slow to recover. While there are several factors at play into this dynamic, some of it still stems from past errors following the 2008 GFC.

In the sections that follow is a look at trends in SLG expenditures, employment, job openings, and wages for insight on how a decade of under investment contributes to the slow post-March 2020 SLG jobs recovery.

State and Local Governments Cut Deep Following the Great Recession

From 2005 to 2008, SLG expenditures grew at an average quarterly rate of 1.4%. However, when the Great Recession hit expenditure growth was virtually flat for a couple years before finally increasing — at a much slower rate. From 2012 to the beginning of 2020, the average growth in expenditures has only been about half of its pre-Great Recession trend.

The chart below shows how the Great Recession knocked SLG spending off its path.

The GFC-induced belt tightening fell on government payrolls hard. In 2020, the pandemic made things worse, as states and localities were forced to make cuts to already underfunded services. This is a problem for everyone, not just public servants.

When SLGs don’t have the resources they need to function properly, it drags everything down. Infrastructure deteriorates, schools suffer, and basic services are neglected.

Local and state spending cuts resulted in diminishing public sector payrolls. From August 2008 to September 2012,

• State payrolls decreased 2.6% (137,000 jobs), mostly were in not-education related positions; and
• Local government payrolls shrunk 3.3% (437,000 jobs), in educational and non-educational employment alike.

While the public sector shed fewer jobs at the onset on the pandemic, its recovery has been considerably slower. SLG job recovery is still hovering about 3–4% below its Feb. 2020 peak compared to a full recovery of private sector employment. However, some private sectors, like leisure and hospitality, are still down considerably.

SLG non-education employment only recovered its GFC job losses a few months before the onset of the COVID-19 pandemic. For nearly a decade the public sector has been facing staffing shortages. But the issue is not due to a lack of job openings. In fact, job openings have never been higher.

City Hall Has a Problem Attracting New Hires

In July 2022, SLG job openings were about 924,000 — a level that has steadily increased since 2010. The continued growth in employment needs emphasizes underlying problems in the government sector holding back employment.

As one individual who left the public sector for private employment put it:

The job ads for municipal roles sounded old-fashioned and tiresome, not at all exciting or contemporary. Yet as I branched out and looked at private sector roles, I found hundreds that checked my boxes.

Underinvesting in technology, stringent rules around working from home, and the strain of being on the front lines working with the public during the pandemic has contributed to burnout and difficulties working for SLGs.

The MissionSquare Research Institute conducted a survey of 1,100 public-sector workers at the end of 2021 and found that over half want to leave their jobs. The positions often include high responsibility positions such as policemen, firemen, healthcare officials, and educators.

Low Public Sector Pay and Underinvestment

Over the past decade growth in public wages has lagged private ones, coupled with under investment in technology and other advancements.

Low public sector pay is one problem. This has led to a situation where the public sector can’t compete with the private sector for talent.

In 2018–2019, a series of teachers’ strikes took off across the country following a campaign by activists in West Virginia. The strike inspired similar statewide strikes in Oklahoma and Arizona and staff protests in Kentucky, North Carolina, Colorado, and a school bus driver walkout in Georgia.

But wages are only part of the problem, governments have been underinvesting in new technologies.

While governments used 2020 aid to upgrade their IT infrastructure, a survey of municipalities found a relatively small percentage of the aid used by local governments went toward this purpose. A majority of respondents who received CARES Act or ARPA funds said they spent 10% or less of it on IT.

This is a problem because the pandemic has forced many SLG employees to work remotely, but underinvestment in technology has made it difficult for them to do so. On the contrary, New York City municipal government is limiting remote work, removing a benefit now common across the private sector.

What can be done to Improve Public Sector Employment?

A number of organizations have proposed recommendations that include:

• The Federal government should invest in research and development to improve the productivity of state and local government.
• State and local governments should offer competitive salaries and benefits.
• Governments should focus on attracting younger workers by improving working conditions, offering flexible work arrangements, and using social media to reach candidates.
• Governments should provide opportunities for workers to learn new skills and advance in their careers.
• State and local governments should collaborative with each other to share best practices and improve the quality of government services.

These solutions are not new, but change is slow. Human capital is equally, and in most cases, more important than our physical infrastructure.

If you liked this post from Back of the Budget, please share and follow me on Twitter @WhatTimTweets. Any opinions expressed herein are those of the author and the author alone.